• The FOMC is expected to announce its decision on the interest rate tomorrow, at 18:00 (GMT).
  • The FED is widely expected to increase the interest rates by +0.25% to +2.00%.
  • Market is currently pricing in the probability of increasing the current interest rate by 87%, according to Feds Funds Futures (FFF).

As the Federal Reserve is preparing for a very probable interest rate hike tomorrow, investors focus shifts on the commentary the U.S. central bank will make on its monetary policy.

Borrowing costs could be an important factor to consider, as a rate hike could elevate them too higher levels amid an ongoing economic expansion. Such a development could help cool down the economy.

According to media, the FED plans to reduce its monthly balance sheet by US$10 billion to US$40 billion per month.

This also could be an attempt, to slow down the economy amid fears of overheating it.

Coming from a solid US economic activity perspective and favorable employment conditions, it could be the case the FOMC’s median fed funds rate forecast for 2018 is lifted to 2.375% from 2.125%.

However, the latest dot plot showed a three rate hike path for 2018 including the previous one enacted in March 2018.

We see the case for the next rate hike to be in tomorrow’s meeting 13th of June, followed by another possible rate hike in September 2018.

We also leave the door open for a further rate hike in December 2018.

The argument for an additional rate hike could strengthen, should the Feds forecasts alter to the better, in which case the dot plot could adjust accordingly.

Furthermore, the accompanying statement could have a more hawkish tone.

Overall, we see the case for a positive effect on the greenback. Please be advised that at the time of the announcement and later on (until the end of the press conference) we could have greater volatility than usually on USD crosses.



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