Last week, the Fed delivered a hawkish surprise by indicating two US interest rate hikes in 2023, with the tapering of its asset purchases potentially happening much sooner than expected. This change in tone sheds new light on the major economic data and events due in the coming days, especially the scheduled speeches by Fed officials:

Monday, June 21

  • Fed speak: St. Louis Fed President James Bullard, Dallas Fed President Robert Kaplan, New York Fed President John Williams
  • ECB President Christine Lagarde speech

Tuesday, June 22

  • Fed Chair Jerome Powell testimony before US House subcommittee
  • Fed speak: San Francisco Fed President Mary Daly, Cleveland Fed President Loretta Mester
  • Eurozone consumer confidence

Wednesday, June 23

  • Fed speak: Fed Governor Michelle Bowman, Atlanta Fed President Raphael Bostic, Boston Fed President Eric Rosengren
  • Markit PMIs: US, UK, Eurozone

Thursday, June 24

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  • BOE rate decision
  • Germany IFO business climate
  • US weekly jobless claims
  • Fed speak: Philadelphia Fed President Patrick Harker, Atlanta Fed President Raphael Bostic, St. Louis Fed President James Bullard, New York Fed President John Williams

Friday, June 25

  • Fed speak: Cleveland Fed President Loretta Mester, Boston Fed President Eric Rosengren
  • US personal income and spending, PCE inflation, consumer sentiment

The Fed’s switch in tact has send the buck soaring, as dollar bulls rejoice at the thought of a better-than-expected US economic recovery prompting the Fed into sooner-than-expected action.

However, from a technical perspective, the USD index is having a breather at the time of writing. This index is trying to pull back from overbought conditions, having broken above the upper bound of its Bollinger band while its 14-day relative strength index attempts to retrace back to the sub-70 region.

Note that this USD index is an equally weighted index comprising six major currency pairs, as opposed to the benchmark DXY which has different weightings for its 6 constituents (Euro being the largest at 57.6%, and the Swiss Franc accounting for just 3.6% of the DXY).

Still, should Fed officials tow a hawkish line over the coming days, in light of what had transpired at last week’s FOMC meeting, that could spell further gains for this USD index, potentially seeing it match its year-to-date high.

‘Markets Extra’ podcast: Fed discos to taper-town

BOE to follow Fed’s cues?

This change in approach by the Fed could prompt the Bank of England to follow suit, framing the BOE’s policy commentary in a new light. Note that UK inflation climbed above the central bank’s target for the first time in two years, with the CPI coming in at 2.1% year-on-year in May. This could hasten the BOE’s attempts to rein in surging consumer prices.

Overall, markets remain optimistic about the UK economic reopening considering its elevated vaccination rates. Still, the spread of the Delta variant remains as a source of concern, having pushed back the full reopening of the UK economy which was initially due to happen today.

It remains to be seen how the BOE will interpret such risks, and how it will impact Sterling.

GBPUSD has tumbled under the weight of the soaring greenback in recent sessions, having broken below its 100-day simple moving average (SMA), though finding support for the time being around the 1.38 mark which proved reliable in March as well as end-May. Stronger support may arrive at the 1.3670 region.

To be clear, the BOE is widely expected to leave its policy settings untouched this month, just as the Fed did. However, it’s the signaling of its future policy intentions that could rock markets once more.

Should the hawkish voices at the Bank of England also grow louder, emulating their peers from across the pond, that could allow GBPUSD to find a firmer footing above its 100-day SMA.

 

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