Ipek Ozkardeskaya
Swissquote Bank Ltd
It looks like the Federal Reserve (Fed) will announce its latest monetary policy decision to a public with relatively calmer nerves compared to a few days ago.
The VIX index eased sharply from last week’s levels on bank relief, gold tanked to $1935 per ounce and indices on both sides of the Atlantic Ocean were comfortably higher on Tuesday.
The pressure on US treasuries eased, as well, and the US 2-year yield is now around the levels it was before Fed President Jerome Powell’s speech to the Senate which spurred the expectation of a 50bp hike for week’s meeting.
But, even though activity on Fed funds futures looks like it finally is pointing at a solid-ish consensus that the Fed should hike rates by 25bp today, no one really knows how much importance the Fed will assess to the latest banking stress, which, in reality, resulted in an uptick in Fed’s balance sheet due to additional liquidity, but which also tightened the financial conditions sharply.
The chances are that the Fed hikes by a final 25bp to stick to their promise to bring the US interest rates to around 5%. But we could certainly forget about a further advance to 5.5-6%.
For equities, a softer Fed and unexpected liquidity is supportive in the short run. For currencies, a dovish Fed would mean a further depreciation of the US dollar across the board. But all that is dependent on how hawkish/dovish the Fed will sound. And the truth is, a Fed decision has barely been this uncertain.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
Recommended Content
Editors’ Picks
AUD/USD climbs closer to 0.6500 as Israel-Iran ceasefire boosts risk sentiment
AUD/USD recovers further toward 0.6500 early Tuesday amid a positive turnaround in global risk sentiment, bolstered by the Israel-Iran ceasefire announcement. This, along with the revival of Fed rate cut bets, weighs heavily on the safe-haven US Dollar, lending support to the pair for the second consecutive day.
USD/JPY holds the pullback near 145.50 amid a weaker US Dollar
USD/JPY holds the sharp retracement from 148.00 for the second consecutive day on Tuesday amid a broad US Dollar weakness. Fed Governor Bowman pointed to the possibility of a rate cut in July. Meanwhile, the Iran-Israel ceasefire also undermines the USD, adding to the pair's downside ahead of Fed Chair Powell's two-day congressional testimony.
Gold bounces-off two-week lows near $3,335 amid Iran-Israel ceasefire
Gold price rebounds to near $3,350, having hit a nearly two-week low early Tuesday as the Israel-Iran ceasefire announcement boosted global risk sentiment and undermined traditional safe-haven assets. However, reviving bets for a Fed rate cut in July and a weaker US Dollar aid the Gold price upswing.
Bitcoin, crypto market begin recovery as Israel and Iran agree to a ceasefire
The cryptocurrency market made a comeback on Monday, rebounding from a weekend dip as top assets, including Bitcoin, Ethereum, and XRP, staged a recovery. The rebound follows US President Donald Trump's statement that Israel and Iran will each conduct a 12-hour ceasefire, after which the war threats will come to an end.
Could Iran block the Strait of Hormuz? Why Oil is on edge after US strikes
As the Israel-Iran conflict reaches new heights, an old threat is coming back to haunt the markets: that of the closure of the Strait of Hormuz. This narrow arm of the sea in the Persian Gulf, wedged between Iran to the north and the United Arab Emirates and Oman to the south, is much more than a simple sea passage.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.