USD: Markets are being forward guided
The stand out of yesterday’s communication from the Federal Reserve was scaling back the expectations of its 2024 easing cycle. Prior projections of 100bp of easing were slashed to just 50bp. The clear message coming through from the Fed was that it remains uncertain whether the terminal rate has yet been reached and that it would be premature to consider easing. A few hours before the Fed decision, minutes from the last Bank of Canada (BoC) decision suggested the BoC was holding out for one more hike in its projections primarily to deter easing expectations from building prematurely. Clearly, forward guidance is at work.
Markets were not completely happy to be forward-guided, however, and 1m USD OIS swap rates priced 15-18 months forward only rose 12-14bp despite the Fed raising its end 2024…
