Fed, BoC and BoJ meetings enter the limelight

Dollar traders turn cautious ahead of Fed decision - Attention will fall on the likelihood of a September rate cut - BoC and BoJ to remain on hold; eyes will be on future action signals - Wall Street retreats on disappointing earnings; Microsoft and Meta awaited
XM Group | 464 hari yang lalu

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Dollar traders lock gaze at Fed decision

The advance of the US dollar slowed down on Tuesday, with the world’s reserve currency gaining some more ground against the euro, the franc, the kiwi and the loonie, but staying virtually unchanged against the pound, the yen, and the aussie. Today, the greenback is staying rangebound against nearly all its peers.

This suggests that market participants are reluctant to assume large positions ahead of the FOMC decision later today. Yes, the committee is widely expected to keep interest rates untouched, but the voting pattern and Fed Chair Powell’s press conference are likely to attract special attention as market participants try to figure out how policymakers are planning to move forward, especially after the latest trade deals between the US and some of its major trading allies.

Although investors expect most members to vote for no change in interest rates, they will be eager to see whether there are any dissenters after Fed Governors Waller and Bowman were clearly in favor of a rate reduction this month. What’s more, even if Powell reiterates that they should not rush into cutting rates further, investors may be looking for clues as to whether the trade deals achieved before the August 1 tariff deadline have reduced the upside risks to inflation.

If so, the probability of a September rate cut – currently at around 70% – could increase, which could prove negative for the US dollar. However, given that there are still several nations that have not found common ground with the US, the risk of massive tariffs on August 1 remains relatively elevated and thus, Powell may avoid signaling that a September reduction is a done deal.

BoC to stand pat amid sticky inflation; BoJ to be monitored for hike clues

Ahead of the Fed, the BoC will announce its own monetary policy decision, while early on Thursday, it will be the turn of the BoJ.

Getting the ball rolling with the BoC, officials are expected to remain on hold due to stickier-than-expected inflation, with investors assigning only a 60% chance of another rate cut by year-end. With the Bank already worried about tariff-induced inflation and businesses warning that they will most likely pass the extra cost to consumers, it will be interesting to see whether policymakers will revise their inflation projections upwardly. What is intensifying those risks is that the negative atmosphere in US-Canada trade negotiations, with US President Trump threatening to impose a 35% levy if no deal is sealed by August 1.

As for the BoJ, this bank is also expected to remain on hold and thus, all eyes will be on the forward guidance. Following the US-Japan trade accord, the probability of a rate hike by the end of the year has risen to around 80% and thus, traders will be looking for a confirmation or lack of it.

Wall Street pulls back ahead of Microsoft and Meta earnings

On Wall Street, all three of the main indices slid on Tuesday due to some disappointing corporate earnings. Among others, United Parcel Service shares plunged as the company once again declined to issue annual revenue and margin forecasts due to President Trump’s continually changing trade policy, while the stock of home appliances maker Whirlpool plummeted after the firm slashed its annual earnings forecast, citing pressure from a pull-forward in imports by rivals ahead of Trump’s tariffs.

That said, around 200 firms in the S&P 500 have already announced earnings with the results exceeding forecasts by 6.4%. Today, after the closing bell, Microsoft and Meta will report their earnings and another set of better-than-expected numbers may allow stocks to rebound. The fact that the US and China are close to extending their trade truce until they find a permanent solution may also prove a helping variable.

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