Details Cookies
Important margin product information
CFDs and forex spot transactions are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor lose money when trading CFDs and/or forex spot with this provider. 0.42% of retail clients trading in leveraged products experience a negative account balance after a stop out occurred. You should consider whether you understand how CFDs, forex spot transactions or any of our other products work and whether you can afford to take high risk of losing your money.
Cookie policy

This website uses cookies to offer you a better browsing experience by enabling, optimising and analysing site operations, as well as to provide personalised ad content and allow you to connect to social media. By choosing “Accept all” you consent to the use of cookies and the related processing of personal data. Select “Manage consent” to manage your consent preferences. You can change your preferences or retract your consent at any time via the cookie policy page. Please view our cookie policy here and our privacy policy here

FX Update: Three ways for FOMC to surprise hawkish even if data also critical FX Update: Three ways for FOMC to surprise hawkish even if data also critical FX Update: Three ways for FOMC to surprise hawkish even if data also critical

FX Update: Three ways for FOMC to surprise hawkish even if data also critical

John Hardy

Head of FX Strategy

Summary:  The FOMC is set to deliver a 25 basis point rate hike today, with guidance the chief focus, especially the degree to which Fed Chair Powell pushes back against expectations for a significant rate easing cycle to begin already ahead of year end. With or without a more hawkish message from the FOMC, incoming data is critical. Tomorrow set to see the ECB confirming hawkish expectations, while the Bank of England is more complicated.

Today's Saxo Market Call podcast.
Today's Market Quick Take from the Saxo Strategy Team

FX Trading focus: FOMC: Powell set to push back against market’s complacent expectations, but will need to pull a big surprise to get respect unless data conveniently strong. SEK pain continues despite normally supportive backdrop – what gives?

Please refer to the FOMC, ECB and Bank of England previews in the latest excellent piece from Charu Chanana, our strategist in Singapore Charu. We are mostly on the same page and I don’t have much to add to her thoughts. One key consideration, however, both for what the Fed and Fed Chair Powell actually deliver today in the monetary policy statement and the press conference, is the quality of incoming data, not only the data this week, but the CPI data point on the 14th. Yes, inflation has faded as a focus in the US with the recent couple of data points, but the new methodology, if it sees a far lower contribution from the largest and very badly lagging component of CPI, Owner Equivalent Rent, could see an even more rapid deceleration in CPI in the coming few months.

Until then, a hawkish Fed with upside surprise in earnings and payrolls and especially ISM Services that all combine to backup the Fed’s message are the most USD supportive (outside of real hawkish surprises as outlined below), while the least USD supportive is a monetary policy statement that still points to an imminent pause after a bit more hiking, followed by weak pushback with nothing to back it up from Fed Chair Powell, and then in-line to slightly weaker or much weaker data.

Outside of rhetorical protestations at the post-FOMC , the Fed can surprise on the hawkish side and reverse the aggressive easing in financial conditions in perhaps three ways, in relative order from most hawkish to less hawkish:

A large hike. The least likely surprise would be a larger than expected rate increase – 50 basis points or even something cheeky like a 37.5% hike to take the rate to 4.75%, abandoning the quarter point upper and lower bound silliness that is a relic of ZIRP days.

Something on the balance sheet. Somewhat hazy here, but if the Fed points to new ways that it will seek to adjust its balance sheet reduction to engineer longer rates higher to ensure tightening financial conditions, this could come as a significant surprise and could give risk assets a bloody nose and boost the greenback.

Refusing to guide for a pause and pointing explicitly to financial conditions as a factor in Fed decision to pause. This is perhaps the most likely course for the Fed to take to make its point, as it would force the market to recognize that as long as financial conditions are exceptionally easy, the Fed may continue hiking for now, only seen failing to do so if, for example, credit spreads were to tighten and financial conditions likewise as weak data points to a sharply weakening economy.

The GBPUSD rally found resistance near the prior major high near 1.2450 as it awaits the FOMC and BoE meetings today and tomorrow. Thoughts on the Fed above, but the Bank of England can surprise significantly today as well, with perhaps far more potential to do so on the dovish side, given the weak (if now less dire) outlook and stabilization of the currency in recent weeks and the huge drop in energy prices. The market is pricing the BoE to deliver about another 60 basis points of hiking beyond the 50 basis points expected tomorrow. While EU-US 2-year spreads are at a 15-month highs, the UK-US spread has eased lower since mid-December. The USD is likely in the driver’s seat as the prime mover, but BoE surprises could add some mustard to the move in either direction.

Source: Saxo Group

Elsewhere, one of the most prominent trends in FX outside of the strong Aussie, which has been driven by a resurgence in industrial commodities as Chinese demand is seen returning post pandemic, is the very weak Swedish krona. The krona is traditionally correlated with a strong outlook for the European/global economy and is one of the most sensitive currencies to risk sentiment. One driver here seems to be the concern that the Riksbank expressed yesterday that the steep advance in rate hikes risk system pressure on Sweden’s financial system. Yesterday, Sweden reported a 47% rise in bankruptcies for January relative to a year ago, with 130 construction companies going under and restaurants, hotels and retail also under pressure. Sweden’s banks aren’t yet under any pressure, soaring with European peers on the tailwind of higher yields, but the Riksbank concern adds to yield spreads continuing to tilt in the Euro’s favour: the 2-year EU swap is 17 basis points higher than Sweden’s up from negative 125 basis points about six months ago as the Riksbank was an earlier mover and is now seen as soft-pedaling further rate increases after next week’s 50 basis point move higher.

Table: FX Board of G10 and CNH trend evolution and strength.
Let’s see where our trending indicators stand on the close on Friday before drawing conclusions. Absolute values are extremely low here, reflecting significant uncertainty after a strong trending move in the US dollar lower that has lost some momentum and is either seeking confirmation or a reversal.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Some interesting new downtrends signaled in select NZD crosses after weak housing data and as AUDNZD approaches 1.1000 and the 200-day moving average. Otherwise we await the lay of the land into the end of the week after the three key central bank meetings and US data.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1315 – US Jan. ADP Private Payrolls change
  • 1500 – US Jan. ISM Manufacturing 
  • 1900 – FOMC Meeting
  • 1930 – US Fed Chair Powell press conference     
  • 2130 – Brazil Selic Rate
  • 0030 – Australia Dec. Building Approvals
  • 0030 – Australia NAB Business Confidence


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
Beethovenstrasse 33

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.