Talking Points:
- June Fed rate hike odds up to 88%, and odds for four hikes in 2018 are above 35%. - The US Dollar has benefited from the release of the March FOMC[1] meeting minutes, which suggested that policy officials see a greater risk of an inflation overshoot, meaning a faster rate hike path is possible. - See the full DailyFX Webinar Calendar[2] for upcoming strategy sessions. Looking to learn more about how central banks impact FX markets? Check out the DailyFX Trading Guides[3]. The US Dollar has firmed up quickly in the second half of the week thanks largely due to the release of the March FOMC minutes yesterday. The minutes, which detailed a policy meeting that yielded a 25-bps rate hike, an upgraded economic outlook, and a more hawkish ‘dot plot,’ carried a clear message: there are risks to the upside for both inflation and growth, so markets should be prepared for a steady diet of rate hikes moving forward. While Fed rate expectations were dampened coming out of the disappointing March US Nonfarm Payrolls report last Friday, they have quickly rebounded after the March FOMC minutes. At the start of this week, the implied probability of a June hike were down to 78%; they are now 89%. Similarly, odds of seeing four hikes this year have increased from 23% to 37% in recent days. Table 1: Fed Funds Rate Hike Expectations (April 12, 2018)
Even though the US Dollar has been trading independent of rate hike expectations shifts since the beginning of March – largely due to the overhang of fiscal uncertainty in
