Markets price in 41 bps of Fed tightening by year-end after the median dot plot signals one rate hike in 2023.
The US dollar surged after the Federal Reserve’s dot plot showed a median projection of one rate hike this year, defying expectations of no change. Markets now price in 41 bps of tightening by year-end, with a 36% chance of a July hike and 74% for September. Fed officials emphasized data dependency, signaling further moves if economic indicators support it.
The INR’s relief rally, driven by easing oil prices after a potential Hormuz reopening, stalled following the hawkish Fed shift. The rupee’s momentum waned as traders reassessed the impact of higher US rates on emerging market currencies. Prior gains had been fueled by expectations of reduced geopolitical risks in the Middle East.
Traders are closely watching upcoming economic data, which will guide the Fed’s next steps. The shift in rate expectations has already prompted a repricing of assets, with the dollar strengthening broadly against major and emerging market currencies.