By:- Bas Kooijmani the CEO and Asset Manager of DHF Capital S.A
The dollar held steady on Wednesday, ahead of the Federal Reserve’s upcoming monetary policy decision. Changing expectations about the Fed’s stance, a tense geopolitical backdrop, and the impact on inflationary risks have fueled caution ahead of Chair Powell’s comments. The 10-year Treasury yield slipped, as oil prices retreated to a certain extent.
Yields and the dollar remain exposed to escalating tensions in the Middle East, as disruptions to energy infrastructure and key supply routes pushed oil prices higher, stoking inflation concerns.
Looking ahead, all eyes are now on Powell’s speech later today. A firmer focus on energy-driven inflation risks from the Fed Chair could reinforce the narrative for a more hawkish stance on monetary policy and push yields and the dollar to the upside. However, a focus on the job market could weigh on both.
Recent labor market data has tilted the balance modestly in a dovish direction. A renewed slowdown in private hiring could signal that momentum in the jobs market is fading, weighing on interest rate expectations.
Only one interest rate cut is expected at the moment, later this year, although the timing could keep changing as new data emerges and as the Fed releases its economic projections later today.
