Credit Agricole CIB Research discusses its expectations for today's FOMC June policy meeting.
"We think that the bar for a hawkish surprise today is quite high. In particular, the FOMC can still opt to deliver a 50bp hike while the updated Fed ‘dot plot’ could further fall short of the current lofty market expectations. Where we do see a potential for a less market-friendly outcome would be the Fed ‘dots’ for 2024 and the updated terminal rate, which can suggest that policy could remain restrictive even as the US economy is expected to slow down significantly from here. To the extent that this fuels market recession fears, it can also boost the appeal of the high-yielding, safe-haven USD," CACIB notes.
"That being said, we think that the USD’s ability to sustain its recent gains will ultimately depend on the Fed’s ability to corroborate the current hawkish rate market expectations. If this is not the case today, the USD could cede some ground and, assuming that risk sentiment remains subdued overall, any potential correction could be more pronounced vs low-yielding safe havens like the JPY, EUR and CHF," CACIB adds.