As the FX market reacts to the Bank of Japan surprise hike, all eyes are now on the upcoming Federal Reserve (FOMC) announcement. According to ING’s FX analyst Francesco Pesole, the market is eagerly awaiting the BoJ governor’s statement and intervention details before shifting focus to the FOMC announcement scheduled for this evening.
Fed Meeting Expectations
While it is expected that rates will remain unchanged, there is uncertainty surrounding Chair Jerome Powell’s guidance. Powell is likely to maintain a cautious stance on inflation, but his dovish views could lead to USD-negative headlines during the press conference.
ING’s view is that the Fed may opt for a September cut to prevent an economic slowdown. The combination of a weakening job market and positive disinflation news could prompt a rate cut. However, the extent of guidance provided by the Fed for future meetings remains unclear, with expectations for a significant dollar drop uncertain.
Despite the possibility of slightly hawkish language, the market may still anticipate a September rate cut. The greenback faces downside risks in the current environment, with the upcoming payrolls release on Friday likely to have a significant impact on the FX market.
Analysis and Implications
In summary, the FX market is currently reacting to the Bank of Japan’s surprise hike, but attention is quickly shifting to the Federal Reserve’s upcoming announcement. The Fed’s decision on rates and guidance provided by Chair Jerome Powell could have a significant impact on the USD and overall market sentiment.
Investors should monitor the Fed’s messaging closely, as any hints of future rate cuts or hawkish language could influence market expectations and currency valuations. The upcoming payrolls release will also be a crucial event to watch, as it could further shape market sentiment and impact FX trading.