Market participants just scaled back their expectations of interest rate rise from the Federal Reserve after May’s payroll report showed job gains of just 38,000 and previous two gains revised down by 59,000.
Today, Federal Open market Committee (FOMC) will announce interest rate decision at 18:00 GMT.
Let’s look at how the market is pricing the hikes this year, heading into the meeting.
Current FED funds rate stands at 0.25-0.5 percent
- June, 2016 meeting – Market is attaching 100 percent probability that there will be no hike today.
- July, 2016 meeting - Market is attaching 79 percent probability that rates will remain at 0.25-0.5 percent, and 21 percent probability that rates will be at 0.5-0.75 percent
- September, 2016 meeting - Market is attaching 64 percent probability that rates will remain at 0.25-0.5 percent, 32 percent probability that rates will be at 0.5-0.75 percent, and 4 percent probability that the rates will be at 0.75-1 percent
- November, 2016 meeting - Market is pricing 62 percent probability that rates will remain at 0.25-0.5 percent, 33 percent probability that rates will be at 0.5-0.75 percent, and 5 percent probability that the rates will be at 0.75-1 percent
- December, 2016 meeting - Market is pricing 44 percent probability that rates will remain at 0.25-0.5 percent, 41 percent probability that rates will be at 0.5-0.75 percent, 13 percent probability that the rates will be at 0.75-1 percent, and only 2 percent probability that the rates will be at 1-1.25 percent
Hike expectations have shifted downwards sharply across the meetings. As of now, the market is pricing just one hike this year and that in December. This is in sharp contrast to FED’s expectations of two hikes.
The dollar index is currently trading at 94.81, down -0.1%, heading into FOMC.


BOJ Raises Interest Rates to 1% as Inflation Pressures Persist
BOJ June Rate Hike Likely as Inflation Risks Rise Amid Middle East Tensions
Taiwan Central Bank Likely to Keep Interest Rates Unchanged Through 2027
ECB Set to Raise Interest Rates as Energy Shock Fuels Eurozone Inflation Concerns
South Korea Signals Possible Interest Rate Hike as Inflation Remains Elevated
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed
Indonesia Passes New Central Bank Law, Raising Investor Concerns Over Policy Independence




