First rate hike of 2018 is going to happen tomorrow ,it will be the first rate hike of new Fed Chair Mr. Jerome Powell as well. Thankfully the rate hike is not controversial and has been fully priced in . The US dollar is trading higher ahead of the monetary policy announcement because investors are expecting that the hike will be the accompanied by hawkish guidance.The primary focus will be on Fed chair’s press conference and his game plan for the rest of the year. A number of economist are looking ahead for the possibility of fourth rate hike this year, however it would be very soon to expect an additional rate hike. We know the new Fed chair was very optimistic in his last speech and believe that headwinds have become tailwinds.
We know the Fed will raise interest rates and Powell’s tone will be optimistic but it’s unclear what changes will be made to the economic projections and dot -plot forecast. If the dot plot shows the Fed favouring 4 rate hikes , USD/JPY will break 107 and EUR/USD will hit 1.22. However if it stays at 3 hikes this year , the dollar will fall and the steepest losses should be versus the yen and sterling. We’ll be looking for USD/JPY to sink at least 105.75 and GBP/usd to rise above 1.41 USD/CHF breaks 0.9500.
Bank of New zealand is also set its latest monetary policy after FOMC announcement. The main concern would be on rising inflation , instability in dairy prices , softer business activities, The new Zealand dollar was highly under sell off pressure against its major counterparts , the new bank policy is widely expected to support kiwi.
The Aussie Dollar sold off this Monday and tuesday trading session but canadian Loonie managed to survive after Positive comment by Canadian prime Minister Justin Trudeau on Nafta deal and Steel Tariff also 2 % rise in oil prices help Loonie to resist aggressive sell off. The reserve bank of australia announced unchanged monetary policy on monday night. The RBA sees further progress on the jobless rate and inflation and expects growth to exceed potential this year.
Where the Euro also fell hard on tuesday after the release of softer investor confidence. Both the German and Eurozone ZEW surveys dropped to their lowest levels since september 2016.
Although Sterling traded lower against the greenback , its decline is modest compared to other major currencies. Inflation in the U.k slowed in February with consumer Price growth easing to 2.7% year over year from the previous month.
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