By Han Tan, Chief Market Analyst at Exinity Group
Markets are on tenterhooks ahead of the US inflation data later Wednesday which will hold great sway over the Fed’s rate-hike plans. Fed Funds futures currently show that markets have almost fully priced in a 75-basis point hike by the FOMC later this month, with another 100 basis points of rate rises set to follow before 2022 draws to a close.
A fresh four-decade high for the CPI headline print, along with more signs of unabating inflationary pressures, may well force the Federal Reserve to punch harder and faster in its battle against runaway consumer prices.
Increased bets for more incoming jumbo-sized Fed rate hikes this year would pave the way for the already-rampant US dollar to go from strength to strength. The benchmark DXY may be given fresh impetus to move closer to the psychologically important 109 mark, a level last seen in 2002.
Risk appetite will likely be left on wobbly legs in the interim, amid heightened concerns that the Fed’s ultra-aggressive policy stance could ultimately lead to a recession.
On the flip side, a noticeable peaking in price pressures will soothe risk assets if it leads to a less aggressive policy path by the FOMC.
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