Welcome to FED day, and if there’s any doubt as to the state of play in currency markets right now the following headline from Reuters says it all:?Dollar towers over peers as markets bet on large FED rate hike.
These are the mid rates at 6:25 today:
Brent Crude = $121.17 per barrel
- The calm before the storm or the Dollar’s outsized move running out of steam??We will know at 8pm tonight but after taking a hammering over Friday and Monday yesterday saw the Rand trade flat to positive with us managing to creep back below R16.00 to the Dollar, just.
- I for one am glad that we have arrived at the FED’s announcement, even if it spells further weakness for the Rand.?After last Friday’s US inflation report the market has gone into a speculating frenzy with analysts and financial institutions all trying to out-headline each other with their worst case scenarios.?To put things into perspective, a week ago CME’s FedWatch barometer saw a 3.6% chance that the FED would hike rates by 75bps, but today that same indicator is sitting at 99.7%.?The Dollar Index touched a fresh 20 year high of 105.67 yesterday, but everybody is just guessing what the FED will do and we need Jerome Powell to bring some certainty back into play.?
- The following is from CNBC and suggests further Dollar strength ahead:??The Dollar edged higher against a basket of currencies on Tuesday to scale a fresh two-decade high as traders braced for an aggressive rate hike from the FED this week to try to curb inflation. “The Dollar remains the best of a bad bunch in FX land,” said Michael Brown, head of market intelligence at payments firm Caxton in London. “Today’s trade is a pretty classic pre-FED calm, though I doubt it will last, with a hawkish FED likely to provide the required catalyst for a further leg higher for the Dollar.”
- But in flicking through various financial news articles this morning there is an interesting counter-narrative starting to come through, and that is that the market’s expectations have gotten so hawkish that the FED is probably going to disappoint even if they do try to ramp things up.?Talk of a 100bps hike, and talk of the FED hiking rates in between scheduled policy meetings have worked the market up into a froth so even if they do go with “just” 75bps today, which would be the biggest move since 1994, the Dollar could lose ground.?
- The following is from Reuters and refers to how stretched market expectations have become:??At least in the near term, analysts feel that the Dollar has not much further to go. "Given current aggressive market pricing, there is a risk the FED is deemed ‘not hawkish enough’, pulling down U.S. interest rates and the USD modestly after the meeting," said CBA analysts in a morning note. "In our view, it will take more than a 75bps hike tomorrow, a nod to a 100bps hike for the FOMC’s July meeting, to push the USD up significantly after the FED meeting."
- While the Dollar is the main event, news that Scottland’s First Minister, Nicola Sturgeon, is pushing for another independence referendum has heaped pressure on an already fragile Pound.?This coupled with confirmation that the UK’s GDP fell for a second straight month earlier in the week has sent the Pound tumbling with our rate improving to R19.22.??
- Local market data today sees our April retail sales print at 1pm with an uptick from 1.3% to 1.5% forecast, but the market will be wholly focused on the FED’s report at 8pm followed by Jerome Powell’s press conference at 8:30pm tonight.??
- Possible USD mid rate trading ranges in the Rand today are R15.85 and R16.15.?