The US interest rate decision on May 3rd is the key risk event in markets this week, as it reflects the vision of the Federal Reserve and monetary policy leaders regarding the US economy. The US dollar is one of the key players driving market moves because as it is the most traded currency in the world.
It is expected that the Fed will resort to raising interest rates again by 25 basis points, and experts tend to this expectation after Federal Reserve Chairman Jerome Powell told the US Congress that the country’s economy still needs to tighten monetary policy to control inflation and reach price equilibrium.
The dollar is recently exposed to several pressures, the most important of which is the banking crisis that is still ongoing, and its effects may be reflected on the rest of the markets at any time, and fears increase if the Federal Reserve resorts to raising interest rates again. Yet most experts see that the Fed will stop pivot its current policy before the end of 2023.
The US markets closed their session on Friday clearly higher, as the Dow Jones Industrial Average reached its highest level since mid-February, and this gives investors some hope after the US dollar index reached low levels during the previous period.
The dollar index currently records 101.61 against a basket of major currencies, and if the Fed raises the interest rate, this may help to support the value of the dollar against other currencies.
Markets are currently in a state of risk-off sentiment due to a lot of concerns. These concerns are due to the decline in the gross domestic product for the first quarter of the current year 2023 more than expected, in addition to the faltering of the American First Republic Bank, as the California Financial Protection Administration announced the acquisition of the bank by JPMorgan Chase, which means that it represents a new failure for American banks since the outbreak of the crisis that occurred in March. This acquisition comes after the First Republic Bank announced that it had lost the confidence of investors, which led to the flight of deposits from it.
