The main focus yesterday was on the FED meeting and in the run-up. We saw USD bulls take charge in the last several days and take their foot off the gas pedal before the FED meeting and particularly after it. The greenback made some large gains since Thursday last week. But yesterday, the USD was trading lower across the board in European morning trade, with commodity dollars as a notable beneficiary. The Euro also benefited from it, as the ECB held an emergency meeting to discuss the bond rout and fragmentation between Eurozone periphery and central bonds.

The market was increasingly confident that officials would opt to lift rates by 75 basis points, from 1.00% to 1.75%. The main reason is the surprise higher in last Friday’s consumer price index (CPI) report. Prices rose 8.6% year-over-year compared to 8.3% expected. That set off a rout in bond and stock markets on the idea that the FOMC is behind the curve and will need to tighten the economy into a recession.

Yet it wasn’t until late Tuesday that the odds jumped definitively above 50%. Why?

A big reason is a pair of independent, yet curiously timed articles.

Two Fedwatchers: The Wall Street Journal’s Nick Timiraos and CNBC’s Steve Leisman released reports within hours of each other suggesting the Fed was looking at 75 bps.

A 75 basis point move is “a real distinct possibility,” Liesman said.

“A string of troubling inflation reports in recent days is likely to lead Federal Reserve officials to consider surprising markets with a larger-than-expected 0.75-percentage-point interest-rate increase at their meeting this week,” Timiraos wrote.

In the Bernanke era and before, the Fed used signals like this to avoid surprising the market. In more recent times, signals like this have been rare but so have late FOMC pivots on policy.

Before the Fed went into lockdown, Powell seemed to take great pains to kill the idea of a 75 bps hike. He said the central bank would “strive to avoid adding uncertainty” and that it was not actively considering 75 bps. Many other Fed officials signaled the same, some in stronger terms.

The probabilities also reflect the possibility of the Fed going even further, hiking by 100 basis points. They could also make more-aggressive balance sheet moves, though that would be adding fuel to the fire of the bond rout.

Finally, the market will be keying on the terminal top for Fed funds and signals about it from the dot plot. In the most-recent release in March, the top was around 2.75%. The market now sees rates in the 3.75-4.00% range in February.

The Fed could either endorse that or push back on it. This is hawkish for the USD, meaning more rate hikes to come. But after yesterday’s hike, the market got a bit relieved and the USD retreated.

AUD/USD Live Chart