Fed Could Signal the End of the Hike Cycle

The Fed’s rate decision is the most anticipated event of the day and possibly the coming weeks. As usual, the markets have a strong consensus on what the central bank will do in the short term, but they are more uncertain about its future moves. The tone of the statement and the assessment of the latest economic data are the primary sources of potential market volatility.

US PPI Confirm Disinflationary Trends

US producer prices fell stronger than expected, potentially reinforcing the dovish argument at the Fed. For May, PPI declined by 0.3% m/m, more than the expected 0.1%, and the index gained a modest 1.1% y/y after 2.3% a month earlier.

Fed Review: Powell's Hawkish Bluff

The Fed held rates unchanged at 5.00-5.25% as widely anticipated. However, the updated 'dots' surprised hawkishly, signalling two more 25bp rate hikes.

Australia May Labour Force: A Robust Read But Flattered by April's Seasonal 'Anomaly'

Total employment gained 75.9k or 0.5% in May, higher than Westpac’s near top-of-the-market forecast for a +40k gain, but well above the market median forecast for a more modest +17.5k lift. This has seen the three-month average growth rate lift from +42.9k/mth to +47.6k/mth.

Focus Turns to ECB

The main event today is of course the ECB meeting. A 25bp rate hike is widely expected, so interest should centre on new staff projections and any signals about the future rate path, ECB preview: Looking beyond next meeting, 8 June.

A Hawkish Smack

Why, on earth, has the Fed started playing a guessing game, instead of hiking the rates right away? It is because the US policymakers know that the idea of a 25bp hike - or two 25bp hikes - is more powerful than a 25bp hike itself, as future rate hikes are more effective in managing market expectations.

Next Up is the ECB

Next up is the ECB. A 25 bps rate hike to 3.5% is all but certain. We expect the central bank to hint at another move in July, as currently discounted by money markets, but to take a more neutral, data-dependent approach beyond that.

New Zealand Dollar Dips after Soft GDP Report

The Reserve Bank of New Zealand raised rates by 25 basis points in May, bringing the benchmark rate to 5.5%. The central bank will have some time to gauge the effect of its rate tightening, as it does not meet again until July 12th. The IMF weighed in on the Bank’s rate policy ahead of the GDP release, urging more tightening in order to bring down high inflation.

Crypto Market Gives Back March Rally

Cryptocurrency market capitalisation fell 3.2% over the past 24 hours to $1,021 trillion, its lowest level since mid-March when cryptocurrencies rallied on concerns about US banks. There is likely to be a reversal now that crypto exchanges have become a target for regulators and the banking system has managed to avoid any new high-profile failures.

USD/JPY – Yen Slides to 7-Month Low after Fed, BOJ Meeting Next

The Japanese yen has taken a tumble on Thursday. In the European session, USD/JPY is trading at 141.24, up 0.81%. Earlier today, the yen fell as low as 141.50, its lowest level since November.