US Dollar: Fed repricing after hawkish pivot – Scotiabank

FXStreet Insights Team FXStreet

Scotiabank strategists Shaun Osborne and Eric Theoret report that the US Dollar (USD) is trading mixed as renewed Iran tensions hit risk appetite, with stocks falling and Oil (Brent) jumping 6%. They argue markets are overreacting to June’s hawkish Federal Open Market Committee (FOMC) pivot, noting Chair Warsh’s criticism of the dots and his reluctance to front-run Federal Reserve (Fed) reform task forces, while 37 bps of tightening priced by December still looks excessive.

Iran tensions and FOMC expectations

"Risk appetite has slumped, with global stocks down sharply."

"The dollar picked up some support earlier in London trade following the president’s ceasefire comments, but gains are limited and the DXY is still trading at a small net loss on the day."

"Developments leave markets pondering whether this is a brief and temporary rupture in the peace process or a prelude to another sustained campaign against Tehran."

"That decision helped add to broader dollar gains that were accumulating since the early May rebound but we think the market is overreacting."

"Swaps have retraced some of the buildup of Fed hike expectations that developed in the wake of the June meeting but 37bps of tightening implied in OIS by Dec still looks way too rich."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD treads water around 1.3360

GBP/USD alternates gains with losses around the 1.3360 zone on Wednesday. That said, Cable’s upside remains capped as markets stay cautious following the flare-up of tensions in the Middle East.

EUR/USD flirts with 1.1400; geopolitical landscape deteriorates

EUR/USD comes under renewed selling pressure, slipping toward the 1.1400 region on Wednesday. The pair’s second daily pullback in a row follows extra strengthening of the US Dollar on renewed safe-haven demand after President Trump said the MOU with Iran to end the conflict was "over".

Gold bounces, remains below $4,100

Gold turns lower on Wednesday and trades deep in negative territory, opening the door to another potential visit to the key $4,000 yardstick per troy ounce. The yellow metal’s decline follows a modest uptick in the US Dollar as tensions in the Middle East have resurfaced.

Pi Network crashes to a record low amid broader market stress

Pi Network (PI) price edges toward $0.1000 extending losses for the fifth straight day. Retail sentiment remains bearish as Open Interest and the funding rate decline. The technical outlook for PI is bearish as selling pressure mounts, despite oversold conditions.

Fed Minutes to shed light on Warsh's first meeting as Chair

The United States (US) Federal Reserve (Fed) will release the Minutes of the June 16-17 Federal Open Market Committee (FOMC) meeting on Wednesday at 18:00 GMT. The Minutes should shed more light on the Fed’s hawkish hold delivered at Kevin Warsh’s first meeting as Fed Chair. Even so, doubts remain about how much the minutes will reveal, given Warsh's refusal to provide forward guidance.

Bye, forward guidance: How to trade when central banks choose silence

Central banks have spent years telling markets what might come next. Now, traders face the possibility that they say a lot less. From the Federal Reserve to the European Central Bank and the Bank of England, policymakers are pushing back against forward guidance.