The market turned a bit more dovish on the Fed after the recent comments

Rate cuts by year-end

• Fed: 60 bps (81% probability of no change at the upcoming meeting)
• ECB: 24 bps (84% probability of no change at the upcoming meeting)
• BoE: 51 bps (62% probability of rate cut at the upcoming meeting)
• BoC: 31 bps (68% probability of no change at the upcoming meeting)
• RBA: 72 bps (90% probability of rate cut at the upcoming meeting)
• RBNZ: 33 bps (77% probability of no change at the upcoming meeting)
• SNB: 13 bps (75% probability of no change at the upcoming meeting)

Rate hikes by year-end

• BoJ: 13 bps (97% probability of no change at the upcoming meeting)

We can see that the market turned a little bit more dovish on the Fed given the recent members’ comments. The most notable one was Fed’s Bowman change of stance on Monday. She’s been maintaining her hawkish stance for quite some time but on Monday she even opened the door for a July cut in case inflation were to stay muted.

Fed Chair Powell didn’t really push back on that view but he’s more inclined to see how the data evolves throughout the summer. He did mention though that in case the labour market were to deteriorate more than expected or inflation were to come lower than expected, he would support ‘earlier’ rate cuts.

Therefore, mark on your calendar the next NFP and CPI days as they will be very important for the market and the Fed. If they both come on the softer side, we could see the market even pricing in a July cut.

This article was written by Giuseppe Dellamotta at www.forexlive.com.