Hawkish Fed Hold Predicted to Support Dollar

Financial markets are bracing for the Federal Reserve's (Fed) next move, with MUFG's Lloyd Chan predicting a hawkish hold on interest rates. This stance would mean the Fed keeps rates unchanged while emphasizing elevated inflation risks.

Despite softer recent US data, including a 15,000 rise in ADP weekly employment that fell short of expectations, markets still price some probability of a July hike. The Conference Board's Consumer Confidence Index dropped to 90.8 in July from 92.2 in June, missing forecasts of 92.4.

Chan argues this hawkish hold should keep US yields and the dollar supported, which would weigh on Asia FX broadly. He notes that markets have priced in around a 34% chance of a 25bps Fed rate hike at the July meeting, slightly lower than the 38% being priced in just days ago.