Rally May Fade on Fed Balance Sheet Announcement


US Dollar Fundamental Forecast: Neutral

  • US Dollar rally may see a short-term pullback on the FOMC announcement
  • Balance sheet reduction plan and a potential 75 bps hike eyed this week
  • Base case scenario (50 bps hike) could lead to a pause in the USD’s rally

The US Dollar DXY Index hit its highest level since 2022 last week, adding to a ferocious rally that has been aided by global growth concerns while the Federal Reserve grows increasingly hawkish relative to its peer institutions. Market-based measures for a 50-basis point Fed rate hike at next week’s FOMC meeting, such as overnight index swaps (OIS) and fed funds futures, have strengthened throughout the past several weeks. There is even chatter of a possible 75 bps hike, although the market seems unconvinced.

That opens the door for a surge in the Greenback if the Fed does deliver a jumbo 75 bps hike. However, the USD may have fully priced in the smaller 50 bps hike, leaving the door open to a “sell the news” event. Still, a pullback may be just that. The chance for a reversal in the Dollar’s bullish trend is unlikely to occur, given the Fed remains poised to deliver another 50 bps hike in the June FOMC meeting. That leaves the Fed on track to tighten policy at a more aggressive rate than major peers such as the European Central Bank (ECB) and the Reserve Bank of New Zealand (RBNZ).

Moreover, the Fed is likely to announce details on trimming its balance sheet, which ballooned to over USD 9 trillion through the pandemic. The details will be key for financial markets, but the move will more than likely cause a reduction in liquidity in the rates market, which would also pressure the broader market through higher short-term interest rates. The announcement may trigger further risk-off flows amid already growing economic concerns. That would bode well for the Greenback, but given the impressive run-up to this week, it could trigger a short-term pullback.

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter





Source link

Related articles

ADNOC L&S takes supply of first new-build LNG provider forward of schedule

ADNOC Logistics and Providers introduced it has taken supply of ‘Al Shelila,’ the primary of six newbuild liquified pure gasoline (LNG) carriers from Jiangnan Shipyard in China. The vessel has been delivered two...

Oppo Enco R3 Professional With 12.4mm Drivers, As much as 44 Hours of Complete Battery Life Launched: Worth, Specs

Oppo Enco R3 Professional earphones have been launched in China...

Disney settles swimsuit over girls’s pay for $43 million By Reuters

(Reuters) – Walt Disney (NYSE:) has agreed to pay $43.3 million to settle a lawsuit alleging that its female employees in California earned $150 million decrease than their male counterparts over...

Peter Schiff Reveals Who Pumped Bitcoin to $99,180, XRP Fails to Skyrocket, Shiba Inu Burn Charge S… | by The Affiliate 2024 | The...

Bitcoin’s spectacular rally to a excessive of $99,180 on Friday, November 22, caught the eye of each lovers and critics. Peter Schiff, a widely known Bitcoin opponent, took to social media to touch...

Chainlink Could Attain New ATH If This Barrier Breaks, Analyst Says

An analyst has defined how the trail to a brand new Chainlink all-time excessive (ATH) might open up if LINK can break previous this resistance block. Chainlink Might Discover Main Resistance At The $20...
spot_img

Latest articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

WP2Social Auto Publish Powered By : XYZScripts.com