Ella 
The Federal Reserve’s interest rate decision meeting will be the highlight of this week. The Federal Reserve’s interest rate decision announced at 2 o’clock Beijing time on Thursday will become the focus of market attention.
As for the Fed not cutting interest rates at this meeting, this is almost a certainty. The overnight index-year interest rate curve reflects only a 1.0% chance of a quarter-point rate cut by the Fed, driven mainly by dovish Fed Chairman Powell and strong economic data. The market has re-priced the Fed’s hawkish bias in July, indicating expectations for a first interest rate cut of 25 basis points (-26 basis points), although a rate cut in June remains an option (-15 basis points). U.S. economic growth and labor data remain strong, and inflation data is also heating up – both inflation and the producer price index were overall higher than economists expected in February (overall inflation has been stable at around 3.0% since October 2023) , the monthly inflation rate indicator (January-February) showed that the producer price index and consumer price index remained strong, in line with expectations.
Since the probability of the Fed adjusting interest rates this time is extremely low, the focus will be on the ensuing interest rate statement and, of course, the Fed’s interest rate forecasts, especially the dot plot released every quarter. The last time the Fed’s forecast took a dovish turn; Fed officials expected three rate cuts of 25 basis points each this year and four rate cuts in 2025. The latest data shows evidence supporting changes to upcoming forecasts, but if there is a change (or an explicit wording tweak in rate statements), it will have a clear impact on major asset classes.
Ultimately, the Fed is likely to maintain a similar message that it will cut interest rates three times this year, and will need more evidence that inflation is continuing to move toward its 2.0% target before cutting rates. If this comes to pass, the dollar could see some downside following the data release. Equally important, before the Fed decision, the U.S. dollar index was close to daily resistance at 103.62, with the 200-day and 50-day simple moving averages (SMA) at 103.69 and 103.55 respectively.
