Noor Trends News, Technical Analysis, Educational Tools and Recommendations
The FOMC meeting will be the main event for the market today. We don’t expect the Fed to send any significant new policy signals, but now updated forecasts will likely show a first rate hike in 2023 and we may see the first comments from the Fed on Possible tapering in 2022.
The Federal Reserve releases its statement without surprises or changes in interest rates, but at 18:00, it publishes the updated quarterly forecast, which is known as ‘The dot plot.’
The focus of the markets will be entirely on the future move and interest rate projection. Back in March, the majority saw that the rate hike would happen in 2024. Still, as market conditions improve, this may lead to speculation of a rate hike sooner, giving a boost to the US dollar. Still, without a significant upgrade to updated inflation expectations, any rise in the US dollar may be temporary.
In the March Projection, PCE inflation was forecast to be 2.4% at the end of 2021 and core at 2.2%. Economic growth was predicted to be 6.5% and the unemployment rate to be 4.5%.
Even if the US dollar gains, it could take a hit from Federal Reserve Chairman Jerome Powell’s press conference at 18:30 GMT. Correspondents are likely to ask if the FOMC discussed tapering the bond-buying plan during the meeting, and if the answer is no, the US currency will take a hit.
Rising consumer prices in the US are driving speculation that the Federal Reserve will start tapering its $120 billion per month credit-market bond-buying plan as a way to combat inflation. Consumer prices have more than tripled since January to 5%, and the 6.6% PPI reading last May is a promising indication of manufacturing increases that will be pass on to buyers.
Once the Fed starts to scale back its bond purchases, it could take months or even years to complete depending on the economy’s progress.
Powell will undoubtedly be asked questions about tapering during the press conference, and the answers alone will determine the market’s reaction.
On the other side, The United States and the European Union issued a joint statement on Tuesday, which emphasized that the two sides have concerns about the practices of Russia and China recently.
Washington and the European Union pledged continuous cooperation in the steel and aluminum sectors to deal with excessive production capacities.
The two sides expressed their deep concern about the “situation in the East and South China Seas.” They strongly opposed any unilateral attempt to change the current situation in the region amid rising tensions there.
US Dollar
The dollar settled near a month-high against a basket of currencies on Wednesday, June 16th. Investors tried to ascertain whether the US Federal Reserve would change its tone on stimulus after the recent jump in US inflation.
The dollar index was little changed at 90.499, after hitting a one-month high on Tuesday despite mixed US economic data.
US retail sales fell more than expected in May, while April’s data was revised to a sharp rise and far above its pre-pandemic level.
This data reinforced the belief in a strong economy’s recovery with the return of spending to services again from goods as vaccination campaigns allowed Americans to travel and participate in other activities.
