FX Crosscurrents: The Impact of Global Central Bank Decisions

We had RBA, Bank of Japan, Fed, Riksbank, Bank of England, S&B.

And, you know, looking at what happened over the last days, big move in the dollar, probably the Fed meeting was the most important one.

What are your thoughts on the FOMC outcome? And, you know, especially rate-wise, what do you expect the Fed to do?

Yeah, like I totally get the reaction in the markets.

I think...

the dots profile and the median dot profile was really the clincher in terms of the market move and since the dot profile began the first one was published back in 2012 we've never had a bigger shift from one publication to the next in terms of moving from nobody expecting a hike in the March dot profile to nine expecting a hike in this one.

So it was a dramatic shift.

And I think that certainly spooked the market.

Kevin Warsh himself, he clearly doesn't like forward guidance and he didn't give a dot in the profile.

So and the statement was shorter and he's launched these reviews of different aspects of Feds functioning and policies.

So we're in for some significant changes, but he did keep reiterating or he kept reiterating the need for price stability and saying that the Fed would achieve price stability.

So yeah, all in all it was hawkish, but do we really believe Or should we put a lot of emphasis on the dot profile, which is probably going to be abandoned relatively soon? And was that dot profile shaped in any way by the fact that there was a change in leadership? I certainly think there could have been an attempt to send a message that, you know, it's the whole FOMC and In that sense, you know, we're still back to, I guess, the data going forward and ultimately inflation and the labour market.

And, you know, it's our view that inflation has in or around peaked.

And through the rest of this year, we should see some disinflation in the annual rate as the energy drop feeds through, but also OER corrections weaker.

And the tariff impact from last year also kind of falling out of annual rates.

So I think inflation drops back.

So I don't think we're going to get a hike from the Fed.

So in that sense, I would argue that the upside for market rates is relatively contained from here.

And therefore, the scope for sustained US dollar appreciation is fairly limited as well.

If I just go back to remember from what the drivers you had for dollar weakness last year and then at the beginning of this year, a number of them are still in place.

Maybe short-term interest rates differential in the short-term helped the dollar to rally a bit.

But the other drivers, if you can a bit elaborate on those, fiscal problems, et cetera, they're all pretty much intact for longer-term trend.

Yeah, and of course, I think the interest rate differential driver that's helping the dollar will peter out.

But then I think, yes, the other factors that we've mentioned, fiscal uncertainties for sure.

Obviously, you've got the cost of the conflict, but not just the direct cost, but also the fact that we have higher inflation.