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Foreign exchange news -- outlook for the US dollar this week: the Federal Reserve may jointly raise interest rates and shrink the table, but is a US dollar correction imminent?

发布时间：2022-08-25 浏览：122

• the Federal Reserve's monetary policy statement this week may make the dollar fall in the short term

• the market expects the Federal Reserve to announce the schedule reduction plan and raise interest rates by 75 basis points this week

• if the Federal Reserve announces only a 50 basis point increase in interest rates, the rise of the US dollar may be suspended

The dollar index hit its highest level since 2022 last week, and the dollar rebounded strongly driven by concerns about global economic growth.

At the same time, the position of the Federal Reserve relative to other central banks has become increasingly tough. Overnight index swaps (OIS) and federal funds futures have strengthened in the past few weeks,

It is expected that the Federal Reserve will raise interest rates by 50 basis points at this week's meeting, and there is even speculation that the Federal Reserve may raise interest rates by 75 basis points this time, but the market does not seem to believe it.

If the Federal Reserve really raises interest rates by 75 basis points this time, it will open the door to a sharp rise in the US dollar. However, the US dollar may have fully priced the 50 basis point interest rate increase expectation, which also opens the potential door to the "sell facts" market.

However, the correction is not expected to be too large, considering that the Federal Reserve is still preparing to raise interest rates by another 50 basis points at the Federal Open Market Committee meeting in June,

It is unlikely that the trend of the US dollar will reverse. This makes the Fed expected to be more aggressive in tightening interest rates than major central banks such as the European Central Bank (ECB) and the Bank of New Zealand (RBNZ).

In addition, the Federal Reserve may announce details of reducing its balance sheet, which swelled to more than $9trillion during the pandemic.

The details of the cuts will be crucial to the financial markets, but the move is more likely to reduce the liquidity of the interest rate market, which will also put pressure on the overall market by raising short-term interest rates.

At a time of growing economic concerns, this statement could trigger a further wave of risk aversion. This bodes well for the dollar, but given the strong rally last week, it may also trigger a short-term correction.