The market now expects four Fed rate hike announcements throughout 2022, with a larger scale hike per "Fed rate hike" announcement.
The US dollar index (DXY) corrected around 0.1 percent in today's trading (19/January), after having bounced higher thanks to a surge in US Treasury yields in yesterday's trading. Speculation about four "Fed rate hikes" this year resurfaces ahead of next week's FOMC meeting, giving the US dollar additional energy to fight its rivals.
Fed funds futures have now begun to factor in four Fed rate hike announcements throughout 2022, with a larger scale of rate hikes per announcement. A number of analysts believe that the appreciation of the US dollar can continue if market participants not only expect a higher frequency of interest rate hikes, but also a higher terminal rate or a higher number of rate hikes per "rate hike".
“A lot of (the Fed) officials left us with a hawkish impression just before the silence (ahead of the upcoming FOMC meeting),” said Jan Nevrusi, market strategist at NatWest, “After (yesterday's) price movement, there has been more than one rate hike in the cards. for the March meeting, and going into next week, I imagine it fluctuates between 25-50 basis points."
Societe Generale's Kit Juckes also commented, "We expect a re-calculation of US interest rates -and the recent shift in yields to reflect a higher push in expected terminal interest rates, not just the pace of (rate) increases. faster at the start- will support the dollar in the first half of the year."
The tug-of-war between traders who are pro and contra against this new discourse is likely to color the fluctuations in the US dollar until the FOMC meeting on January 25-26. Meanwhile, market participants are also starting to monitor developments in the geopolitical situation in Ukraine.
White House Secretary Jen Psaki told reporters that Russia's move to prepare tens of thousands of troops near the border with Ukraine had created a "very dangerous situation". US Secretary of State Antony Blinken will meet Russian Foreign Minister Sergei Lavrov in Geneva on Friday to discuss the issue.
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