On a bright Tuesday, the dollar took a tiny step back, relaxing after strutting its stuff at a two-week high. Everyone is on the edge of their seats, eyes wide open for the upcoming Federal Reserve decision – an anticipated nudge in interest rates.
At the break of dawn, 02:55 ET (06:55 GMT), the mighty Dollar Index, like a superhero with six other currencies under its wing, traded a smidgen, 0.1%, lower at 100.960. Just the night before, it had flexed its muscles to a whopping 101.65, a height unseen since the sultry summer day of July 11.
Moving on to the main event folks, the Fed’s gearing up for another rate hike! Traders huddled around their screens got a pleasant surprise as U.S. consumer confidence climbed to a two-year peak in July. Good news, right? Better believe it! The economy proved it’s tougher than old boots, brushing off higher interest rates while inflation took five.
Later, the Fed’s bigwigs will wrap up their two-day powwow and likely greenlight a quarter-point hike. For those keeping score, that’s the 11th hike in their last 12 meetings! But wait, there’s a twist. The million-dollar question is – will they push for more hikes this year or is this the final act in their dramatic tightening show?
So, traders everywhere are eagerly waiting for Chair Jerome Powell to spill the beans after the decision, offering them a sneak peek into the minds of the policymakers.
The number-crunchers at Goldman Sachs predict the upcoming hike might be the Fed’s last hurrah in the tightening saga. But the Fed might keep the market guessing and decide to stay a touch more hawkish.
The big question, Goldman says, is whether Powell will hint at the ‘slow and steady’ tightening path he endorsed in June. If he does, it might mean we’re looking at a rate hike every other meeting.
Meanwhile, over in the Eurozone, the euro dusted itself off after hitting a two-week low. EUR/USD ticked up 0.1% to 1.1067, a hair above yesterday’s low of 1.1036, a number last witnessed on the balmy day of July 12.
The European Central Bank, like its American counterpart, is expected to nudge interest rates by another 25 basis points come Thursday. However, whispers are starting to circulate that the bank might have to hit the brakes on further hikes this year. Why? Well, all signs point to the economy hitting a slow patch.
On Monday, the Purchasing Managers were singing the blues about the declining manufacturing activity in the Eurozone. Tuesday’s German Ifo hinted that business morale in the region’s heavy hitter – Germany, slipped for the third month straight.
The boffins at Goldman Sachs, armed with this fresh data, trimmed their 2023 Eurozone growth forecast on Tuesday.
Down under, the Australian dollar stumbled, with AUD/USD dipping 0.2% to 0.6776, after weaker-than-expected consumer price index data made traders bet against the Reserve Bank of Australia’s further interest rate increases.
The GBP/USD remained as steady as a rock, trading pretty much unchanged at 1.2898. On the other hand, USD/JPY fell 0.2% to 140.68, with traders casting one eye on the Bank of Japan meeting scheduled for this Friday. Meanwhile, the USD/CNY rose by 0.2% to 7.1513 as hope for more economic stimulation in China started to cool off, just as traders geared up for the much-anticipated Fed decision.