Outlook
US economy is on track to raise interest rates before any other of the eight major currency economies, this makes the USD strongest currency fundamentally. Recent FOMC statement attributed weakness in the first quarter to transitory factors and Yellen has since been proven correct in this claim, as US data has improved since April. We have seen better core CPI and NFP including an increase in hourly earnings, as well as better Retail Sales and various other tier two beats on estimates. All these things are positive for the US dollar and the Fed may use this statement to make the market aware that a rate rise is very close.
The Fed Funds Rate Futures are currently pricing in the first hike in October, however September is also a viable option.
The bias for this release is to the upside for USD as the Fed may strike an upbeat tone. However it will also be necessary to take into account the economic projections, which may add an extra variable into any potential trade. GDP forecasts have the potential to be downgraded given the slow growth in the first part of the year.
Reaction
If the Fed are hawkish in their statement we will see the dollar bought across the board, and likely sustained for weeks going forward. Conversely, if the Fed focus on global concerns regarding Greece and imply that a deterioration of the Greek debt situation will cause them to be more cautious regarding rate lift-off, then we will see dollar weaken.
After the statement and projections have been digested by the market, there will be the press conference which may cause a continuation or retracement of any moves that were initiated upon statement release. Expect volatility.
