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The Greenback spiked higher as the Fed signaled room for two more hikes later this year but quickly returned most of those gains. The central bank also hiked rates by 0.25% as widely expected.

  • U.S. headline PPI up from 0.1% to 0.5% vs. 0.3% forecast
  • U.S. core PPI up from 0.2% to 0.3% vs. 0.2% forecast
  • U.S. EIA crude oil inventories fell by 4.1M barrels vs. projected 1.4M drop
  • FOMC hiked interest rates by 0.25% to 1.75-2.00%
  • FOMC: Economic activity rising at a solid rate
  • FOMC: Household spending and business investment picked up
  • FOMC: Risks to economic outlook remain roughly balanced
  • Fed Chairman Powell: Concerns about trade activity are increasing
  • Powell: Slow wage growth still a bit of a puzzle
  • Powell: Rates will soon be neutral assuming gradual pace is maintained
  • Powell: Fourth hike in 2018 looks likely, higher oil to bring inflation past 2%
  • Australian jobs and Chinese data dump coming up

Major Events/Reports:

FOMC rate hike

All eyes and ears were on Fed Chairperson Powell and his fellow policymakers as they announced the widely expected 0.25% interest rate hike to 1.75-2.00%.

In their official statement, the FOMC was mostly upbeat in acknowledging that economic activity is rising at a solid rate. It mentioned that the labor market has continued to strengthen, household spending has picked up, and business fixed investment has continued to grow slowly.

However, the Fed still reiterated that their monetary policy stance remains accommodative in order to support the jobs market and sustain the return to 2% inflation.

FOMC presser and projections

During the press conference, Powell spoke of how the U.S. economy is in great shape. He did admit that the slow wage growth remains a bit of a puzzle, but that the committee thinks that they’re within striking distance of the 2% inflation goal and that they won’t overreact if the target is hit.

Powell also pointed out that the recent surge in oil prices would likely lead to a transitory boost in inflation, making the idea of four interest rate hikes this year more likely. He hinted that rates could move closer to neutral over the next year or so.

This view was supported by the updated FOMC projections:

FOMC Projections (June 2018)
FOMC Projections (June 2018)

In summary, economic forecasts for 2018 enjoyed slight upgrades from their March estimates while next year had positive revisions for unemployment and PCE inflation.

The Fed funds rate projections for this year and the next were also upgraded, and the dot plot illustrates where policymakers stand:

FOMC Dot Plot (June 2018)
FOMC Dot Plot (June 2018)

Majority of policymakers expect rates to be around 2.0-2.5% this year and around 2.75-3.25% next year. To be more specific, the median forecasts are at 2.38% at end of 2018, 3.13% in 2019, and 3.38% in 2020.

Major Market Mover(s):

USD

Despite the 0.25% Fed rate hike and the upbeat assessment and outlook from Powell, the dollar’s post-FOMC rally was a knee-jerk reaction at best since trade jitters remained in play.

According to a report on the Wall Street Journal, the Trump administration is gearing up to impose higher tariffs on Chinese goods pronto. An administration official said that plans could be finalized by Thursday and the Donald could pull the trigger by this week.

EUR/USD took a break from its climb to dip to a low of 1.1725 before surging back up to 1.1802, GBP/USD fell to a low of 1.3318 after the announcement then resumed its climb to 1.3380, USD/JPY spiked to 110.85 then fell to 110.17, and USD/CHF is still down to the .9850 mark.

EUR

The shared currency held on to its top spot as expectations for the ECB to announce when they would end their QE program were on everyone and his momma’s minds.

EUR/JPY continued to climb from 129.91 to a high of 130.20, EUR/AUD made its way back to the 1.5600 mark, EUR/NZD advanced from 1.6733 to a high of 1.6829, and EUR/CAD is up to 1.5314.

Watch Out For:

  • 1:00 am GMT: Australia MI inflation expectations (3.7% previous)
  • 1:30 am GMT: Australia’s jobs report (Here’s how to trade this event)
  • 2:00 am GMT: Chinese fixed asset investment ytd/y (no change from 7.0% expected)
  • 2:00 am GMT: Chinese industrial production y/y (dip from 7.0% to 6.9% expected)
  • 2:00 am GMT: Chinese retail sales y/y (gain from 9.4% to 9.6% expected)
  • 4:30 am GMT: Japanese revised industrial production (no change from 0.3% estimate expected)