Ahead of today’s interest rate decision from the Federal Reserve at 2 PM, the United States Dollar finds itself quietly trading in familiar ranges.
Overview
Ahead of today’s interest rate decision from the Federal Reserve at 2 PM, the United States Dollar finds itself quietly trading in familiar ranges. Odds this morning of a hike are sitting at just 10%, down substantially from last week. It’s far more likely than not that the Fed will go today for a “hawkish skip,” and hike interest rates a further 25 basis points in July. Chair Jerome Powell has emphasized several times the importance of pausing to fully assess the macroeconomic impact of the central bank’s 10 consecutive rate hikes rather than overdoing it and hiking today. However, there is still a slight bit of potential for an upside surprise.Market prices will hinge, however, on Powell’s press conference at 2:30 after the decision is released. Given the near eventuality of a hold at this meeting, it’s quite likely that Powell will explain this decision as a skip rather than a pause and lay out the path for a further 25-point hike in July. This puts the Fed on a divergent path from most other central banks around the world after surprise hikes from the Bank of Canada and the Reserve Bank of Australia last week and expected hikes from the European Central Bank and Bank of England this week and next, respectively.It’s quite likely that USD will continue its losing streak for the month should the Fed choose to hold rates today. There is potential for a recovery later this week and next should the ECB and BoE surprise markets, but as we posited in our annual outlook, the second half of the year is likely to be broadly Dollar negative.
What to Watch Today…
- No major economic events are scheduled for today
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GBP ⇑
Once again, Pound Sterling is a leader of the G10 board, gaining roughly another half a percent against USD overnight and into the morning. After yesterday’s strong labor market data out of the UK, this morning’s release of April GDP data hit on expectations and showed a stubbornly resilient larger economic picture. Markets are now pricing in a further four consecutive rate hikes from the Bank of England, placing the terminal rate of this cycle above that of the US and putting GBP on a strong path versus the Buck.
NOK ⇑
In a surprising turn from last month, Norwegian Krone leads all G10 currencies on gains against USD this morning. Norges Bank is widely expected to deliver a 25-basis point interest rate hike at its meeting next week, and potential remains for a surprise 50-point raise, further buoying the currency. Since its weakest point on May 31, NOK has retraced and gained nearly 7 percent against USD this month, followed by the Swedish Krona, which has posted its own 3% gain since last week.
