Without a shadow of a doubt, the main attraction of this week is the upcoming policy rate decision from the Federal Reserve later on today alongside the speech from the head of the central bank for gauging the trajectory of interest rates in the foreseeable future.
As for the actual decision, the market has already moved to fully priced-in the scenario where the bank stands still at today’s meeting, forecasting another pause at the 4.25-4.5% level, their fourth in a row, maintaining in a sense their cautious stance.
Of particular importance therefore will be, the committee’s dot plot in the accompanying statement, which will chart where policy makers see rates moving towards to (or any changes in outlook), their inflation expectations but also their updated economic projections given the looming impact of Trump’s trade and fiscal plans.
Since the introduction of Trump’s tariffs on “Liberation Day” at the start of April, no material change has been observed around price pressures, with the latest CPI print revolving around the 2.4% level and the core rate a 2.8%, close the central bank’s 2% target, not posing an imminent threat for the US economy. Job growth has indeed entered a slowdown phase, yet no major distortions or deviations in readings have been observed that would warrant quick rate reductions from the bank. Economic growth, however, has been particularly week, given the -0.2% contraction in the first quarter of 2025, which may be a valid precautionary sign for lowering rates much sooner than originally projected.
Speaking of projections, money markets are now forecasting that the central bank will slash rates twice this year, once in September and another in December, for a total of 50bps, which will leave a key terminal rate of 3.75%-4% by the end of the year.
Technical Analysis
DXY Chart – Technical divergence of the greenback spotted, possible correction move to the upside may be in the making
Resistance: 98.80 (R1), 100.20 (R2), 101.50 (R3)
Support: 97.10 (S1), 96.00 (S2), 94.70 (S3)