Dot plot shift offers a lift to the dollar
Higher inflation forecasts and more confidence in the reopening led to most FOMC members moving up the timeline for rate hikes.
The median is now for two hikes in 2023 compared to none back in March. There was plenty of talk about a shift to a single hike but two is a genuine surprise. Moreover, 7 of 18 members now see a hike next year and that is now in play.
Powell will likely try to tamp down on those expectations and note that forecasts are variable but the FX market isn’t in the mood to wait.
The US dollar jumped 60-80 pips right across the board. USD/JPY is up to 110.40 from 109.90.
AUD/USD is down to 0.7635 from 0.7705.
There is also a strong tone of risk aversion with the S&P 500 down 34 points to 4212.
The eurodollar market is now fully priced in for a rate hike in 2022.