FOMC Meeting: Interest Rate Hike Expected, Markets Await Key Questions
The upcoming FOMC meeting is expected to deliver an interest rate hike this week, with 92% odds of a rate increase priced in by Fed Funds futures traders. The market reaction will depend on the statement, SEP, and press conference. Traders are looking for answers to three key questions: what could prompt another hike, why they hiked this time, and how to interpret the dot plot.
The EUR/USD has carved out a bearish channel over the last four weeks, with potential for volatility in either direction based on the interpretation of the meeting. A relatively dovish takeaway from the Fed could boost the pair back toward the top of that channel at 1.1600, while a strong 'hawkish hike' interpretation could have EUR/USD testing 1.1500 support.
Traders will scrutinize the central bank's 'dot plot' of interest rate expectations, with both the end-2026 and end-2027 median interest rate expected to rise above 4.0%. Any reading below 4.0% will be seen as dovish relative to expectations, likely weighing on the US dollar and bonds.