The market continues to chop around on the week as all the focus and attention stays on the FOMC meeting later today. It is one of the most anticipated decisions this year as there is plenty of hope attached to a potential policy pivot by the Fed.
Looking towards the decision, it isn't so much so about a 75 bps rate hike that is very much expected at this point. Sure, the Fed may go more aggressive with a 100 bps move and that will also set out a more hawkish message with regards to today's policy setting. However, the more important aspect of the meeting will be the outlook and forward guidance for December and next year.
As things stand, we are very much in the second-half of the tightening cycle among major central banks. Eventually, we will be shifting gears towards a slower pace of rate hikes and talks of a pause (although central banks will defend this by saying that they will keep rates in "restrictive territory" for longer). For example, we already saw that with the RBA yesterday.
Europe and UK are the next to follow and the only difference between the pacing of the narrative is how economic conditions are faring. The US seems to be the cleanest shirt among the dirty laundry and that is enough to let the Fed get away with it.
In turn, that is keeping the dollar as the number one pick in the major currencies space. However, if and when the tide turns i.e. the Fed pivot comes along, that is a clear signal as any that we will see markets turn around after having stuck to the prevailing narrative for almost the entirety of 2022.