Hawkish Monetary Policies: Final Impetus for USD to Rebound

The U.S. Core Consumer Price Index (CPI) in May released last Thursday rose from 3% in April to 3.8% from a year earlier, exceeding 3.4% based on the market expectation. This reveals that the escalating inflation in America is faster than expected. Although the Biden administration and the Federal Reserve (Fed) have seen the current rise as temporary, the majority of senior analysts from the financial market don‘t share the same view. Instead, they believe that this worsening trend has been irreversible that is possible to be severer even ram into the economic recovery and undermine investors’ confidence in the economic prospect, provided the absence of effective control.

As for the U.S. unemployment rate in May reported early this month, the figure dramatically falls back from 6.1% in April to 5.8%. The rate is expected to be lowered further as the wages recently increased by American enterprises for recruitment have been indicative of the job vacancy created by the local economic recovery. In addition, inflation can be fueled in the U.S. because of the steady growth of oil prices. In this case, USD has been fully equipped to be as strong as it was in the first quarter, which is crucially reliant on the Fed meeting scheduled for this Wednesday. Will Powell embark on tightening monetary policies and signal the delisting, interest-rate hikes in the next year, and the stuff in the announcement after the meeting in a bid to comply with the public opinion and Yellens view？

Should the hawkish monetary policies be implied by Powell, USD will definitely boast conditions to be as strong as it has been before. Yet, it is not only the announcement but bitmaps launched after the meeting that should be paid attention to so that the attitude of the Board of Governors to increasing interest rates can be understood. In my opinion, the upcoming bitmaps are possible to reveal the prone to introducing the hikes in advance. Under this circumstance, USD seems to be supported both before and after the meeting, coupled with the U.S. bond interests rebounding from the trough, thus weakening JPY further. The market seen by the Japanese currency will be hazardous if the Bank of Japan (BOJ) continues its everlasting dovish monetary policies after its meeting this Friday.