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USD Turns Higher As Markets Bet Between A 50 BPS or A 100 BPS FED Rate Hike

Posted Monday, July 18, 2022 by
Skerdian Meta • 2 min read

The USD has turned quite bullish this year, as the FED is leading the way regarding rate hikes, having raised them by 1.50% already so far and planning to deliver another major rate hike next week, after raising them by 75 bps in the last meeting. Now markets are trying to guess whether next week’s hike will be by 0.75% or 1.00%, which has been the drive for the USD recently.

FED’s Waller cited two sets of economic data in his internal view of the 75/100 bps debate: retail sales and housing. He said they needed to be ‘materially’ above expectations. The retail sales data on Friday was strong but the market voted that it wasn’t strong enough, especially after fellow hawk Bullard downplayed 100 bps. We’re in the Fed blackout period now so it will come down to WSJ leaks and this week’s set of housing numbers before the decision.

So, the USD has been on a bullish trend and Gold has been bearish ad a result, although last Friday we saw a pullback in the USD, especially after the retail sales data. But, the retrace in GOLD has ended at the 100 SMA (green) on the H1 chart, and now XAU/USD is turning bearish.

Gold H1 Chart – MAs Keeping Gold Bearish

The retrace higher ended at the 100 SMA

Although, a Wall Street Journal FED leaker says FOMC is likely to raise interest rates by 0.75% in July. He predicted well the last rate hike in June. The shockingly high inflation print last month made the expected, and very well signalled 50bp hike at that meeting seem vane and insufficient. A 75bp rate hike seemed to be required, at the minimum.

The Fed was in its pre-meeting meeting ‘blackout’ period though and officials at the bank do like to prepare markets for what to expect when rate hikes are on the agenda. Being in the blackout period meant the Fed could not signal it had heeded the CPI data and wanted to now hike by 75bp.

Hence, a leak was made. The chosen messenger to receive the leak was a journalist at the Wall Street Journal, Nick Timiraos. He wrote an article indicating markets should now expect 75bps. The 75bp hike was duly delivered days later from the FOMC. The market now crowns Timiraos as a Fed-watcher to watch for insider signalling.

The next Federal Open Market Committee (FOMC) meeting is on July 26-27.

Timiraos has a piece up in the WSJ over the weekend, tipping +75bp at the July meeting. There had been plenty of speculation last week about a +100bp rate hike following another shockingly high CPI report. Such speculation was watered down by data (notably the within-range retail sales result) later that week that indicated perhaps +75bp was more appropriate. Timiraos says +75bp it is.

Federal Reserve officials have signaled they are likely to raise interest rates by 0.75 percentage point later this month, for the second straight meeting, as part of an aggressive effort to combat high inflation.
Policy makers left the door open to a larger, full-percentage-point increase at the July 26-27 gathering. But some of them simultaneously poured cold water on the idea in recent interviews and public comments ahead of their premeeting quiet period, which began Saturday.

Gold XAU Live Chart 

GOLD
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