On a difficult day for the technology sector following the quarterly earnings of Netflix e Teslawho have dragged the Nasdaq downwards of 2%like that of yesterday (Thursday 20 July), the dollar index recorded the best performance for about two months ahead of the Fed meeting. Meanwhile the exchange rate euro/usd go back to altitude 1,1133, today down 0,03% looking forward to the meetings of the BCE, this Thursday (July 27th) and of Fed on the agenda wednesday (July 26th).
The dollar index rises in anticipation of the Fed
The dollar index (DXY), which includes the performance of the greenback against its six main counterparts, including the yen, rose again today by 0.3%, returning above the psychological threshold, quota 100. This is the largest weekly gain in two months.
Tradingview chart, DXY performance
US jobs data yesterday showed that the number of Americans filing for unemployment benefits fell unexpectedly last week, hitting an all-time low ( 228,000 units) in two months due to the ongoing job market strain.
Weekly Unemployment Insurance Claims
The markets are pricing in a probability of 96% of an increase in interest rates by the Fed by 25 basis points at next week’s meeting. “We may see the last rate hike for the current cycle, but any ‘dovish’ breakthrough looks far off,” he said Christian Scherrmann, economist of DWS.
Fed meeting, forecasts
Great expectations for the Fed meeting this Wednesday, July 26, the US central bank, led by the president Jerome Powell will announce its rate decision. After the “hawkish” pause in June, in which the FOMC left rates on the Fed funds unchanged between 5% and 5.25%, and in view of the great reshuffle at the top, the hope is beginning to appear that the squeeze priced by the markets could be the last.
According to the former Fed chairman, Ben Bernankethe interest rate hike expected for next week could represent the last squeeze of the current monetary tightening cycle.
“It seems very clear that the Fed will hike rates another 25 basis points at its next meeting,” Bernanke said during a webinar hosted by Fidelity Investments. “It is possible that this could be the last upside.”
In his role as a consultant to PIMCO, Bernanke predicted a “longer lasting” decline in inflation, in the order of 3% – 3,5% in the next six months, following the decrease in rent increases and falling car prices.
Before declaring victory in its fight against inflation, the Fed will want to see a better balance between supply and demand in the labor market. “It’s still pretty hot,” Bernanke said, referring to the job market. Although job vacancies have decreased, there are still around 1.6 open positions for every person considered unemployed.
While second William Happy, Global Investment Strategist, PGIM Fixed Income, While the July 26 meeting is likely to be free of controversy in terms of interest rate decisions, the Fed’s statement and press conference will be highly relevant to markets.
“Like the market, we expect the Fed to announce a 25bp rate hike, which is after July remain on hiatus until the end of the year and then proceed with very gradual cuts. The labor market remains resilient and the residential property market (very sensitive to interest) is also showing signs of recovery. On the inflation front, the news was generally positive, as both headline and core inflation (while remaining high) gradually fell.” He writes Felices in a note. “However, concerns remain about core services inflation, which remains high and sticky. The Fed will have to explain how it sees the US economy holding up. If he hints at the need for tight monetary policy for longer, UST yields at the front end of the curve could rally with a possible wobbly adjustment in duration and risky assets.” concludes Felices of PGIM.