FUNDAMENTAL OVERVIEW USD: The US dollar has been supported since the last FOMC decision but as the hawkish repricing reached a near-term peak, the momentum waned as traders shifted their focus to the key US data.
Right now, the market is pricing in a 29% chance of a rate hike in July, which rises to 65% in September
I’m pretty sure we will need notable upside surprises in the data to force the Fed to hike already in July. September would be the preferred month for them as they also release the SEP and the dot plot. Given the Fed’s focus on inflation, the US CPI will likely be more important for market pricing unless we get a blockbuster NFP report.
In line or worse than expected data, should lead to a pullback pretty much across the board, with the greenback coming under pressure from some dovish repricing. On the other hand, upside surprises should keep supporting the dollar. EUR: On the EUR side, the recent inflation data showed a welcome easing for the ECB which, coupled with the quick drop in energy prices to pre-war levels, greatly diminished the urgency for further tightening.