USD[1], Fed Price Analysis & News
- Fed Event Risk: Highlight of the Week
- Will the Dot Plot Shift to a 2023 Rate Hike?
All Eyes on the Fed
The Federal Reserve meeting will be the highlight of the day and week, marking the last chance for some FX volatility before the summer lull kicks in. With today’s decision unlikely to chuck up any surprises in terms of policy, the focus will be on the dot plot projections as well as the Fed’s statement, including Powell’s presser.
Dot Plots: Firstly, the dot plots released at the March meeting showed 7 members expect the fed to raise rates, up from the previous of 5, while 11 members saw interest rates remaining unchanged in 2023. Therefore, 3 more members will need to shift their outlook to see the median dot-plot projection move to a 2023 rate hike. As it stands, Fed Fund Futures has priced in two rate hikes by 2023, which is unlikely to be matched in today’s dot plot projections.
Will the Dot Plot Shift to a 2023 Hike
Going into the meeting, it does appear rather balanced as to whether the Fed dot plots shift towards a 2023 rate hike, which in turn is likely to see good two-way risks. My view is that the dot plots will shift towards a 2023 rate hike as the economy continues to recover. In turn, such an outcome is likely to see a knee-jerk move higher in the USD. However, should the FOMC[2] refrain from shifting the median dot plot projections (with only 1 or two members shifting) we can expect a similar initial reaction that had been seen in March.
USD Reaction to FOMC
Source: Refinitiv
Forward Guidance: Since the last FOMC meeting, inflation has
