Will The Fed Signal Faster Rate Hikes?

The U.S. dollar was mostly stronger versus other peers ahead of the Federal Reserve policy statement. The global recovery gains traction and investors eager to see whether the Fed will come up with a new guidance on interest rates and upbeat economic projections. Fed Chair Jerome Powell has promised to maintain an accommodative monetary policy but the central bank’s quarterly economic forecasts today will show how many of the Fed members share his commitment. Alongside their expected policy path, the Fed will also release its first dot-plot of the year, offering their point of view on expected interest rates in the future.

The main focus will be on any unexpected findings on the dot-plot such as one rate hike in 2023. If the Fed signals that rates could rise earlier than previously forecasts, the U.S. dollar will rally. If there is however no change of the Fed’s guidance on interest rates or asset purchases, the dollar could give up some of its recent gains.

Last but not least we will have the Fed’s press conference where Powell may push back against the rise in yields and may also downplays the significance of the dot-plot projections.

Regardless of the outcome, traders will brace for higher volatility and larger market moves and we hope that this risk-event will not be as disappointing for traders as the latest ECB decision where the market’s reaction was muted.

The FOMC statement is scheduled for 18:00 UTC, followed by the Fed’s press conference 30 minutes later.

EUR/USD: We focus on a price range between 1.2050 and 1.18. Above 1.2060, a higher target is seen at 1.2180. Below 1.1750 the euro may extend its slide towards a lower target at 1.16.

GBP/USD: The cable traded recently sideways between 1.40 and 1.38. A renewed break above 1.4010 could push the pair higher towards 1.42 and 1.4340. On the bottom side, we will pay attention to a breakout below 1.3770 that could lead to further losses towards 1.36 and 1.35.

Good trades!