The USD is little changed vs the EURUSD, USDJPY and GBPUSD ahead of the Fed rate decision
The USD is little changed vs the 3 major currency pairs – the EURUSD, USDJPY and GBPUSD – ahead of the Fed rate decision later today with all three pairs within 0.09% of unchanged on the day. IN the video above, I take a look at the technicals driving those three currency pairs and define the bias (bullish or bearish), the risks and the targets for each. Understand the roadmap of your trades and you will get better as a trader.
The AUDUSD is the biggest mover with a decline of -0.47% (higher USD) Australia’s June CPI report was softer than expected, with headline inflation falling 0.1% on the month versus expectations for a 0.2% increase, while the annual inflation rate eased to 3.8% from 4.0%, also below forecasts. The RBA’s preferred trimmed mean CPI matched expectations at 0.3% m/m, but slowed from the prior month’s 0.4% increase, suggesting underlying inflation pressures are continuing to moderate. Overall, the report is likely to reinforce expectations that the Reserve Bank of Australia can remain patient on further policy tightening, reducing the urgency for another rate hike in the near term. Technically the price fell below the swing area and trend line support (it held yesterday) and that gave sellers the go-ahead to push lower.
The Federal Reserve will announce its policy decision today at 2:00 PM ET, followed by Chairman Kevin Warsh’s press conference at 2:30 PM ET. This meeting has become one of the most uncertain in years, with Warsh providing little forward guidance and recent economic data sending mixed signals.
What the market expects:
- Base case: No change in the federal funds rate (3.50%-3.75%).
- Market pricing: Roughly 68.5% odds of no change and 31.5% odds of a 25-basis-point hike.
Why the Fed may hold:
- June inflation cooled from May’s elevated readings.
- Oil prices have dropped sharply over the past week, easing some inflation concerns.
- Recent economic data, including softer consumer confidence and labor indicators, point to moderating growth.
- Holding rates would give policymakers additional time to assess incoming GDP and inflation data.
Why a hike remains possible:
- Inflation remains above the Fed’s 2% target.
- Some policymakers have argued that policy should remain restrictive until inflation is clearly under control.
- Chairman Warsh has repeatedly emphasized restoring price stability and has avoided signaling his intentions ahead of meetings, increasing the risk of a surprise.
What markets will focus on:
- Any changes to the statement language.
- Whether there are dissenting votes from hawkish members.
- Warsh’s comments on inflation, labor markets, and the recent decline in oil prices.
- Any indication of whether September is “live" for a rate move.
What are the market implications
- Hold with balanced/hawkish tone: Likely limited reaction initially, with markets quickly shifting focus to Warsh’s press conference.
- Hold with dovish language: Stocks could extend gains, Treasury yields may fall, and the U.S. dollar could weaken.
- 25 bp hike: Likely the biggest market-moving outcome, potentially lifting the dollar and Treasury yields while weighing on equities, particularly growth and technology stocks.
The geopolitical backdrop turned more tense overnight after a brief lull in hostilities.
- The U.S. and Saudi Arabia reportedly carried out joint strikes against Iran-backed militias in Iraq after recent attacks linked to Tehran-backed groups. The strikes mark another escalation in the regional conflict and suggest the pause in military action has effectively ended.
- Iran launched another missile attack targeting U.S. forces, but U.S. officials said the missiles were intercepted. Tehran has also warned of further retaliation if additional military action is taken against Iran.
- Shipping risks remain elevated. Iran-backed forces continue to pressure energy routes, with renewed concerns surrounding the Strait of Hormuz and Red Sea shipping lanes, although broader maritime traffic has not been shut down.
Prime Minister Benjamin Netanyahu’s visit to Washington remained the dominant diplomatic story. Key takeaways from their meeting:
- The leadersfocused primarily on Iran, regional security, and preventing Tehran from obtaining a nuclear weapon. Despite reports of differences over strategy, both sides characterized the discussions as positive and productive.
- Iran remains the central issue. Netanyahu reportedly emphasized that Israel’s red lines remain unchanged, including preventing Iran from rebuilding its nuclear program and maintaining pressure until those objectives are achieved.
- Diplomacy is still being explored. Regional mediators continue working on a framework that could eventually reopen negotiations between the U.S. and Iran, including proposals aimed at stabilizing shipping through the Strait of Hormuz. Those discussions remain preliminary and depend heavily on U.S. approval.
- Political headwinds are growing. Several reports note that while the meeting was cordial, Netanyahu faces increasing political pressure both domestically and in Washington as the conflict enters another prolonged phase.
The US stocks are mixed to lower in premarke ttrading:
- Dow industrial average -222 points
- S&P unchanged
- Nasdaq -21 points.
In the US that market, yields are higher:
- 2 year yield 4.313%, +3.6 basis points.
- 5 year yield 4.396%, +3.5 basis points
- 10 year yield 4.626%, +2.2 basis points
- 30 year yield 5.101%, +5.1 basis points
In other markets:
- Crude oil futures are higher by $3.60 and $82.90
- Gold is little changed at $4030
- Silver is up $0.53 and $57.62
- Bitcoin up $525 and $64,380
This article was written by Greg Michalowski at investinglive.com.