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FOMC Meeting: 75 or 100 basis point hike?

Simon Alagbe

Analyst

The Greenback continued its recent gains against major peers (GBP, EUR, JPY) earlier today as participants of the market look ahead to the Federal Open Market Committee meeting starting tomorrow. The dollar ended last week on the front foot and seems not to be relenting as the dollar index continues its move Northward on a day when banks in Japan and England are on holiday.

The sentiment in the market is favourable to the strength of the dollar as expectations of a higher interest rate gather momentum as confirmed by the persistent Consumer Price Index releases from the United States. The CPI data released last week Market Participants expect the FOMC to hike the rate by at least 75 basis points at this week's meeting with a slight possibility of 100 basis points.

If the Fed were to hike by more than 75bps this would shock the market and likely see a strong USD move while anything lower than 75bps would be seen as very dovish and would weaken the massively strengthened greenback.

Trade Set Up

Owing to the massive volatility recorded at the release of the Consumer Price Index last week, a similar level of volatility would possibly be on the card, especially with deviations from the 75bps expected from the Fed.

Instrument: Dollar pairs (EURUSD, GBPUSD, AUDUSD, NZDUSD, USDCAD, USDCHF, USDJPY), the USDIDX Commodities denominated in dollars (Gold, Silver) as well as the Index (US.30, US.100, US.500, US.2000), will present an opportunity to catch some pips.

 

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