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June 13 – Economic Events Outlook – Fed’s 2% Rate, What Else to Expect?

Posted Wednesday, June 13, 2018 by
Arslan Butt

The Federal Reserve is due to announce its interest rate decision today, but the fact is that the rate hike is already priced in and there are a few other things that could beat up the markets. Let’s dig deeper into the things other than the 2% interest rate, as this isn’t something which will make the dollar stronger.

Watchlist – Top Economic Events to Watch Today

Today, the markets can remain extremely volatile on the release of  CPI data from the United Kingdom as well as the U.S. monetary policy decision.

1) Great Britain Pound – GBP

CPI y/y – Since the beginning of 2018, the U.K economy is struggling with its inflation rate. It has dropped from 3% to 2.4% over the course of five months, which severely hurts the BOE’s rate hike sentiment. Economists are expecting no changes in inflation in this month. Having said that, 2.4% is the inflation forecast and the news is due at 8:30 (GMT).

2) U.S. Dollar – USD

Fed Monetary Policy Meeting  – The U.S. central bank Federal Reserve is expected to hike the interest rates from 1.75% to 2% (25 base points). Is this going to make the dollar stronger?  I don’t think so. Most of the rate hike is already priced in, which means a rise in interest rate can keep the dollar on hold or can even make it bearish.

The real question is, how many more rate hikes are coming?

Fed Dot Plot – The Fed publishes a chart with anonymous Fed officials’ forecasts on interest rate expectations, it’s called dot plot. At present, it shows three rate hikes for the year 2018, and the next rate (the third one) is coming in December. But a slight shift in the dots positioning could make the dollar stronger.

Since the Fed raised interest rates at its March meeting, the unemployment rate has plummeted a further 0.3% to a 48-year low of 3.7% while the economy has added 537K jobs over that period.

Potential Impacts on the Dollar:

2% Rate Hike: The dollar is likely to spike a bit to absorb 0.25% hike in rate, but since it’s already priced in, there are nice chances of bearish reversal. So, if you are an intra-day trader, you need to be an extra careful while placing a buying position.

Unchanged 1.75% Rate: Now this is something which can drive an immense amount of uncertainty and volatility in the market. In case the Fed decides not to hike the interest rate, we will have an awesome opportunity to buy gold and sell the dollar.

Four Rate Hikes On Dot Plot: Alright, now that’s something special.  In addition to the 2% rate hike, if the FOMC members change the dot plot to show four rate hikes in 2018, it will be considered as a hawkish shift in the monetary policy. If this happens, we should expect buying in the dollar and a sharp dip in the gold prices. Anyway, we’ve got our plan ready and I’m really excited to see the market reaction today.

Stay tuned to FX Leaders for more interesting updates and forex trading signals. Good luck!

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About the author

Arslan Butt is our Index & Commodity Analyst
Arslan Butt is our Lead Commodities and Indices Analyst. Arslan is a professional market analyst and day trader. He holds an MBA in Behavioral Finance and is working towards his Ph.D. Before joining FX Leaders Arslan served as a senior analyst in a major brokerage firm. Arslan is also an experienced instructor and public speaker.
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