The market is pretty sure the Fed will raise the fed funds rate range by 75 basis points. US Dollar Reaction Hinges on Release of New “Dot Chart” and Chairman Jay Powell’s Press Conferencereport economists from Commerzbank.
The letter of the points and Powell’s prose
“In June, the points for the end of 2022 were largely between 3% and 3.75%. If they are revised moderately higher, it will not be a positive surprise for the market, but a mere confirmation of your own opinion. The money market expects a 4% Fed funds rate by the end of 2022. This means that an increase in points at the end of 2022 has already been discounted.”
“Since the latest points were released, the market is pricing in a higher ceiling for the Fed’s key rates, but one thing hasn’t changed: the expectation that, after that, interest rates will be lowered back to the area just above 3%. If the new points suggest otherwise, that would be a very positive sign for the dollar..”
“It’s hard for Powell to sound more aggressive than he did at Jackson Hole.. I find it hard to imagine any more hawkish (and thus USD-positive) words.”
“Since Powell already sounded as aggressive as you can imagine, the risk is increased that anything he says now will be interpreted. (or misconstrued) as less aggressive, as a change in direction and could have a more negative effect on the USD.”
“If the dollar is already trading at very high levels, it will be difficult to find arguments to support it further.”
Source: Fx Street
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