“The dollar tends to weaken on FOMC decision days. DXY has fallen the past three meetings and six of the past seven,” explains Win Thin, Global Head of Currency Strategy at BBH.
Additional Quotes:
“We are not yet ready to change our strong dollar call, especially if the Fed delivers a hawkish message as we expect. Yes, the U.S. economic data have been weakening but we do not think a recession is imminent. When all is said and done, we believe the U.S. economy remains the most resilient. However, we expect a period of consolidation ahead for the dollar until the U.S. economic outlook becomes clearer.”
“The two-day FOMC ends today and the Fed is widely expected to hike rates 75 bp to 2.50%. WIRP suggests only 10% odds of a 100 bp move. Updated macro forecasts and Dot Plots won’t come until the September meeting. Another 75 bp hike September 21 is only about 45% priced in, with a 50 bp move favored then. A 25 bp hike is priced in for November 2 but after that, one last 25 bp hike is only partially priced in.”
“The swaps market paints a similar picture, with 175 of tightening priced in over the next 6 months that would see the policy rate peak near 3.5%. Then, an easing cycle is priced in for the subsequent 6 months. This pricing is now more dovish than the June Dot Plots, which sees the Fed Funds rate rising to 3.75% in 2023 before falling to 3.375% in 2024.”
