A new trading week kicks off, and the top event risk will be the FOMC rate decision on Wednesday. The Federal Reserve’s abrupt departure from being patient on inflation which was still considered ‘transitory’ just a few months ago, to panicking on inflation with a current probability of four rate hikes in 2022 results in a loss of credibility.
While a March rate hike is almost a done deal to control the ‘previous transitory’ price pressures, most economists predicted the central bank could use its January meeting to deliver a 25 bp or even a surprise 50 bp rate hike would be the largest since 2000. Speculation about five rate increases this year is also on the table.
What Will The Fed’s Rapid Shift Mean For The US dollar?
As we could see, US dollar bulls seemed to be largely unimpressed by the Fed’s hawkish turn, with the greenback experiencing even a drop against other counterparts. In the face of the central bank’s losing credibility, we could imagine that the US dollar is at risk of dropping despite the Fed’s accelerated rate hike path.
Technically, both EUR/USD and GBP/USD look oversold in daily time frames, which could lead to short-term upward movements. However, bulls should take a cautious approach as risk trends can slip. Current resistances are seen at around 1.37 GBP/USD and 1.1430 EUR/USD. Bear in mind that dollar bulls could pile in ahead of the FOMC announcement but might take any potential profits quickly.
Apart from Wednesday’s FOMC decision, we will have the Q4 US GDP Thursday and the PCE deflator (the Fed’s favorite inflation indicator) Friday.
Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumptions of MaiMarFX traders. They are not meant to solicit or recommend buying or selling a specific financial instrument.