The timing of the Federal Reserve's interest rate cuts this year remains an important factor influencing the forex market. Market expectations at the end of last year suggested that the Fed would begin cutting rates as early as March. However, cautious remarks from several officials, including Chairman Powell, as well as ideal US economic data and no further decline in inflation, have raised concerns that the Fed's monetary policy stance may become more hawkish, with rate cuts possibly delayed until after June. After the March central bank super week, the Fed maintained its prediction of three rate cuts for this year in its latest dot plot, and the latest interest rate futures market data show a roughly 60% chance of a rate cut by the Fed in June. The Fed's forecast for the number of rate cuts this year has not changed, indicating officials remain confident in the decline in inflation. On the other hand, the monetary policy stances of other central banks seem to be more dovish than that of the Fed, maintaining a certain advantage for the US dollar, a situation that may not change easily in the short term, with the US dollar index likely to fluctuate between 102 and 105.

The Reserve Bank of Australia (RBA) and the Bank of England (BoE) both kept interest rates unchanged, but the post-meeting statements were more moderate than before. The RBA removed the comment "a further increase in interest rates cannot be ruled out" from its previous meeting statement, while the BoE governor stated that inflation continued to decline, potentially leading to an earlier rate cut. The current market belief is that both central banks may begin cutting rates in the middle of the year. The most surprising move was made by the Swiss National Bank (SNB), which unexpectedly cut rates by 0.25% at this meeting, becoming the first central bank of a developed country to lead rate cuts. The market believes that local inflation has fallen below 2% in recent years, coupled with the continuous appreciation of the Swiss franc over the past few years, leading to the SNB's sudden rate cut this time. Another market focus is on the Bank of Japan's (BoJ) monetary policy meeting. Due to more favorable outcomes of wage negotiations for large corporations this year compared to last year, the central bank is more confident in the benign cycle of wages and price rises. Therefore, at the March meeting, it raised interest rates, announced the end of the eight-year negative interest rate policy, and canceled the yield curve control (YCC) policy. However, it indicated that it would continue to implement loose monetary policy and maintain bond purchases. The market interpreted this as a dovish rate hike, keeping the Japanese yen under pressure, approaching 152 yen per US dollar. The BoJ conducted verbal intervention to temporarily hold the important support level of 152 yen against the dollar. As the market believes that the BoJ will not raise interest rates consecutively, arbitrage activities remain active. If 152 yen is breached, the yen will test support at 153.50, and before breaking through, small bets can still be placed on the yen rebounding.

Patrick Law

Chief Operating Officer of Hantec Group