All is (relatively) quiet on the Western Front this morning as the United States Dollar trades mostly sideways ahead of today’s Federal Reserve announcement at 2 PM Eastern.
Overview
Widely expected to raise key interest rates by 25 basis points, the real fireworks will come when Chair Jerome Powell starts speaking at 2:30. Markets are searching for any sort of forward guidance to gauge whether this projected hike will be the last one and put the Fed at its terminal rate for this cycle. Though it’s unlikely Powell will take future raises completely off the table, mounting financial sector pressures in the US add a layer of complexity to the Fed’s key mandate of bringing inflation back to the 2 percent target rate. Monday morning’s buyout of First Republic Bank calmed some jitters, but yesterday’s swan dive in prices of PacWest Bancorp and Western Alliance Bancorp renewed fears that this crisis may not be over. Credit conditions are materially tightening throughout the country, once again placing the Fed between a rock and a hard place in order to deliver the mythical soft landing.
Comments by Treasury Secretary Janet Yellen yesterday added to the gloomy domestic picture. She projected the US debt ceiling may be hit as soon as June 1, placing additional pressure on Congress to find a deal and weighing on USD as concerns mount. Powell will also likely emphasize the importance of a deal in his press conference.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
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CAD ⇓
The Loonie took a beating in trading yesterday, lagging behind its G10 peers as banking concerns mounted inside the US and oil prices fell nearly 3 percent. The Bank of Canada has already paused its tightening cycle, so all eyes are on the Fed this afternoon for any signal as to when the US central bank will follow suit and relieve some pressure on CAD. Close ties between the two economies place the Canadian Dollar at the mercy of the whims of the Buck.
JPY ⇑
Japanese Yen won the overnight session, gaining just north of three-quarters of a percent against the Buck and snapping a 3-day losing streak. Concerns over the broader health of the US economy drove traders back into the arms of the traditional haven as they searched for safety. Though markets were initially displeased with new Bank of Japan Governor Ueda’s cautious approach to any changes in monetary policy, his steady hand may prove to be a good thing.
