The US Dollar has remained near it’s recent two-month high with next week’s Federal Reserve interest rate decision looming. The Central Bank is widely expected to pause its year-long interest rate hiking cycle, but expectations are increasing on the possibility that this pause will be temporary, with a potential rate hike in July still on the cards.
Markets are currently pricing a pause by The Federal Reserve next week at 77%, a fair jump from just a 36% possibility just over a week earlier. The increased possibility of a rate hike in July has mainly come from surprise rate increases from both The Bank of Canada and Reserve Bank of Australia, who both raised their respective rates by a further 0.25% due to what they labelled the current sticky nature of their inflation.
Key data coming up for The US is their inflation data for May, which is due out next Tuesday afternoon. Their inflation currently sits at 4.9% and any increase on this would more than likely cement another rate hike, whether it’s too late for next weeks meeting is up for debate but it would certainly bring the conversation to the table and no doubt cause some volatility to The Dollar.
The EUR is still hanging on to 1.07 against The Dollar at present, with ECB officials stating that future rate hikes maybe needed in order to bring their inflation under control. Dutch Central Bank chief Klass Knot stated yesterday that the current tightening is not sufficient and inflation could well remain too high for longer than initially anticipated.
Sticking with The Euro-Zone, their GDP figures are set to be released later this morning with forecasts predicting a slow in growth of the first quarter. Dropping from 1.8% to 1.2%, this could weigh on the ECB’s decision for their rate hike meeting next week.