Hawkish Hold from Fed
The US Dollar is pushing higher on Thursday, fuelled in part by a hawkish FOMC meeting yesterday but also by Trump’s announcement that he will announce a major trade deal today. Covering the Fed first, Powell and co kept rates on hold as expected while striking a more cautious tone over expected easing. Powell noted the risks around the ongoing trade war, with unemployment and inflation both subject to further upside. As such, Powell ruled out the prospect of a pre-emptive rate cut signalling instead that the bank needs to remain patient for now to see how things play out. Specifically, Powell noted that signs of potential negotiations with trading partners were encouraging and could change the picture meaningfully, requiring further patience for now.
Rate Cut Expectations & Trade Deals
Market pricing for a cut in June weakened further on the back of the meeting, with July pricing for a cut sitting around the 50% mark currently. The market reaction saw USD trading a little higher post-meeting. However, the bigger bullish driver for USD looks to be the announcement form Trump that he will announce a major trading deal today, tipped to be with the UK. USD and risk assets have rallied on the back of the news with sentiment brightening. Focus now will be on whether the deal includes a removal of the 10% baseline tariffs or not. If removed, this should see USD trading much higher today, lifting risk sentiment across the board. Focus will then turn to the upcoming US/China negotiations to start on Sunday.
Technical Views
DXY
For now, the recovery rally in DXY remains capped by the 100.38 level. If bulls can breach this level, however, focus will turn to the 101.91 level next and the bear channel highs, in line with bullish momentum studies. To the downside, 97.78 remains key support to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.