From the FXWW Chatroom: A 25bp Fed hike is fully priced for this Wednesday. The accompanying language is likely to be dovish, but the market already holds multi-year USD short exposure.
Near-term risks to GBP are to the downside in our view as the market digests the election result.
US CPI and retail sales data for May, released Wednesday, will likely be more important for the USD than the Fed. We remain short AUDUSD targeting 0.72.
We expect the Federal Reserve to deliver its third consecutive quarterly 25bp rate hike at its 15 June meeting, which is fully priced into rates markets. The updated Summary of Economic Projections will likely show some downward revisions to growth, inflation and the long-run equilibrium level of unemployment. Our economists think the language on the balance sheet is likely to change, setting up a formal balance sheet reduction announcement in September.
Near-term risks to GBP are to the downside in our view as the market digests the election result.
US CPI and retail sales data for May, released Wednesday, will likely be more important for the USD than the Fed. We remain short AUDUSD targeting 0.72.
We expect the Federal Reserve to deliver its third consecutive quarterly 25bp rate hike at its 15 June meeting, which is fully priced into rates markets. The updated Summary of Economic Projections will likely show some downward revisions to growth, inflation and the long-run equilibrium level of unemployment. Our economists think the language on the balance sheet is likely to change, setting up a formal balance sheet reduction announcement in September.
BNP Paribas FX Positioning Analysis signals the market holds multi-year USD short exposure (Chart 1). Therefore, while we are expecting a dovish hike, the market is seemingly already positioned for this and the USD should be unscathed. More important for the USD should be inflation and retail sales data for May, released Wednesday. We remain of the view that a bounce back in Q2 US growth will prompt the market to increase pricing for Fed tightening after June and according remain short AUDUSD targeting 0.72. We continue to forecast yield spread widening between the US and eurozone, which should ultimately push EURUSD lower.