US Federal Reserve

Macro Hive thinks the Federal Reserve could keep hiking interest rates to a much higher peak (5.25% or more) than the market currently prices (3.5-4.0%).

The Federal Reserve will continue to hike by sizeable increments that will maintain conditions for further Dollar strength say analysts.

Dollar exchange rates pared away overnight losses in Europe on Thursday after Chairman Jerome Powell said there is broad support at the Federal Reserve (Fed) for lifting its interest rate to a “modestly restrictive” level during the months ahead in remarks that validated financial market expectations. 

The Pound to Dollar exchange rate rebounded from earlier losses late this week but was hampered again in thin holiday trade on Friday after the May non-farm payrolls and Services PMI reports offered an incitement to a Federal Reserve (Fed) that appeared to become more hawkish in recent days. 

The European Central Bank has recently prepped markets for a pending uplift in its interest rates and chief economist Philip Lane suggested this week that it could now look to “validate” market expectations with actions, although this might have mixed blessing for the Euro to Dollar exchange rate.

The Pound to Dollar rate edged further back above the 1.25 level following the release of minutes from the May Federal Reserve (Fed) meeting, which confirmed that U.S. policymakers could be likely to rethink their interest rate stance if certain economic conditions are met in the months ahead.

The Pound to Dollar rate has rebounded strongly from two-year lows and spent much of the week consolidating steep earlier losses but multiple resistances now obstruct its path higher on the charts and downside risks remain due to Federal Reserve and Bank of England (BoE) policy differences.  

GBP/USD in corrective rebound after the Federal Reserve raises rates but warns a more sizeable 75 basis point hike is unlikely.

"A hawkish FOMC surprise would turbo charge USD and short‑term Treasury yields" - CBA.

The Fed sticking to its current policy plans at next week’s meeting is likely to deepen the market’s loss of confidence and therefore see the curve steepen further.

The Pound to Dollar rate tumbled from the outset in the final session of the week with a dive below 1.30 bringing a major level of support near 1.2837 on the charts into view after UK economic data forced financial markets to reconsider the outlook for the Bank of England (BoE) Bank Rate.

The Pound to Dollar exchange rate neared 2022 lows in the final session of the week as U.S. government bond yields rose further and the greenback’s strength broadened, leaving Sterling vulnerable in the context of recent uncertainty about the Bank of England (BoE) interest rate outlook.

The Pound to Dollar rate was left subdued near to 1.30 and at risk of further losses following the release of minutes from the March Federal Reserve (Fed) meeting, which suggested that financial markets are yet fully appreciate the pending shift in U.S. monetary policy.

Dollar exchange rates lifted following the comments as markets braced for a more rapid ascent in U.S. interest rates than had previously been expected.

"Overall, GBP is expected to trade on a firm footing as long as it does not move below 1.3040 within these few days" - UOB.

"To improve labor supply, the Fed might try to put volatility in its service to engineer a correction in house prices and risk assets – equities, credit, and Bitcoin too," says Zoltan Pozsar of Credit Suisse.

Softer USD gets no help from Jan FOMC minutes, hawkish market left guessing over March move.

GBP/USD risks slide back toward 2021 lows as USD rally accelerates on Fed policy stance.

A guide to the most influential voices on the Federal Reserve in 2022. 

The Federal Reserve spooked markets and boosted the Dollar after revealing it could raise interest rates as soon as March, opening the door to a potential four rate hikes in 2022.