Looming Rate Hike Further Strengthens Dollar Forex Market

• Fed Set to Impose Rate Hike
• Euro & Pound Stay on Back Foot
• Wall Street Trading Cautiously

There is a sense of calm in the forex market and beyond on Wednesday. Quiet trading is the prelude to what is a major day and decision for the market and wider economy. The Federal Reserve is widely expected to impose a 50bps rate hike when its policy is announced later. This move comes with inflation remaining a major concern and the Dollar trading at new highs. These highs have created a challenging environment for other major currencies which all remain under pressure. At the same time, stocks are slightly higher but the street is remaining largely cautious prior to any announcement. 

Major Rate Interest Rate Hike Expected

The US Dollar has been surging to stronger levels for quite some time. This week, and particularly through to the middle part of the week, the probability of a rate hike from the Federal Reserve has kept the currency trading at very strong levels. The US Dollar Index which is a key measure of the USD strength against a basket of other major currencies, has been trading steadily higher in recent days and weeks. It is now above 103.00 on a consistent basis. 

The majority of analysts expect that the Fed will move ahead with a 50bps rate hike. This would be the first of such a size in more than 20 years with the hopes that it can work in combination with more rate increases to fight off inflationary pressures. 

Other Major Currencies Remain Under Pressure

As the Dollar strength continues, there has been little for those forex trading other major currencies to be positive about. Both the Pound and Euro have struggled under the weight of the Dollar. This continues today with no recovery in sight at least for the short-term as rate increases continue. March retail sales from the Eurozone may move the Euro a little, but the focus of the day is more likely to be remaining in the US.

The Pound dropped below 1.25 against the USD with forex brokers early in the day before recovering that position. Any further moves to the upside though seem to remain limited ahead of the BOE and its own policy announcement to come on Thursday.

Stocks Trade Quietly Ahead of Policy News

Wall Street has continued to be dragged through a tough period. Pressure from China and rising COVID cases and lockdowns there have not helped the broader market sentiment though all the major indices posted slight gains to start the week.

Trading on Wednesday has started slowly in the early hours with major indices showing very slight movement in a positive direction. Much of the focus will be on the Fed and not only any rate changes, but associated commentary as traders look to get an early read on future movements from policymakers. The Nasdaq in particular is coming off its worst month since 2008 and looking for more positive news.