Market to Focus on Fed Projections After Rate Hike

Dollar steady ahead of Fed rate decision

The US dollar is lower against the British pound, the Canadian dollar, the euro and the New Zealand dollar ahead of a busy day for the greenback. US inflation and retail sales will be published on Wednesday, June 14 at 8:30 am EDT. The data release will have little impact on the central bank decision but together with the economic assessment of Fed members will help the market evaluate the price of the USD.

The U.S. Federal Reserve will release its policy statement on Wednesday, June 14 at 2:00 pm EDT. The American central bank is widely anticipated to raise the benchmark Fed funds rates by 25 basis points. The CME FedWatch tool is showing a 99.6 percent that the target rate will be in the 100–125 basis points range. The Fed will also publish its economic projections to be followed by a press conference with Fed Chair Janet Yellen at 2:30 pm EDT.

The Fed raised interest rates by 25 basis points in December of 2015 and 2016 and again in March to this year. The USD has struggled in 2017 despite the growing monetary policy divergence with other major economies due to the escalation of political risk surrounding the Trump administration. The economic projections contain the forecasts from FOMC members for the next two years and will be full of insights into what will be the next move by the Fed.

The EUR/USD gained 0.044 percent on Tuesday. The single currency is trading at 1.1205 ahead of the release of the Federal Open Market Committee (FOMC) statement on Wednesday. The European economy appears to be on the mend and even though the European Central Bank (ECB) has been careful in keeping optimism in check by keeping the size of the stimulus program unchanged despite pressure from Germany. The risk of a further breakdown of the European Union has been minimized after the decisive victory of Emmanuel Macron.

Political risk in an ongoing concern pressuring the USD as the Trump administration is immersed in a probe of Russian connections with two high profile testimonies raising more questions than the intended search for answers.

The price of oil rose 0.306 percent on Tuesday. The price of West Texas Intermediate is trading at $46.27 despite the sluggish growth of supply last year even before the Organization of the Petroleum Exporting Countries (OPEC) production cut agreement was put in place. US production has offset the efforts from the OPEC and other major producers with the major factor being stagnant demand for energy despite lower prices.

The GBP/USD gained 0.804 percent in the last 24 hours. The pound is trading at $1.2746 after a surge in inflation ahead of the Bank of England (BoE) policy meeting later this week. The GBP continues to appreciate against the dollar on the back of the results of the UK snap elections where the Conservatives lost a majority and are now looking to partner to get back into power. The probability of a softer Brexit is feeling the pound’s rise, although the fact remains that its based on a very uncertain outcome. The BoE is not expected to change its monetary policy this week, but it had already predicted higher inflation and does not have enough information to give a good assessment on the fate of Brexit.

Market events to watch this week:

Wednesday, June 14
4:30 am GBP Average Earnings Index 3m/y
8:30 am USD CPI m/m
8:30 am USD Core CPI m/m
8:30 am USD Core Retail Sales m/m
8:30 am USD Retail Sales m/m
10:30 am USD Crude Oil Inventories
2:00 pm USD FOMC Economic Projections
2:00 pm USD FOMC Statement
2:00 pm USD Federal Funds Rate
2:30 pm USD FOMC Press Conference
6:45 pm NZD GDP q/q
9:30 pm AUD Employment Change
Thursday, June 15
3:30 am CHF Libor Rate
3:30 am CHF SNB Monetary Policy Assessment
3:30 am CHF SNB Press Conference
4:30 am GBP Retail Sales m/m
7:00 am GBP MPC Official Bank Rate Votes
GBP Monetary Policy Summary
GBP Official Bank Rate
8:30 am USD Unemployment Claims
Tentative JPY Monetary Policy Statement
Friday, June 16
Tentative JPY BOJ Policy Rate
2:30 am JPY BOJ Press Conference
8:30 am CAD Core Retail Sales m/m
8:30 am USD Building Permits

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza