📝 Dollar Rises Post-FOMC Meetings With An 80% Hit Rate: UBS Strategy

Over the last five days, the US Treasury lOy yield has sold off 5.6bp, in line with past performance ahead of an FOMC meeting. Since the Fed hiking cycle started in March 2022, the US 10 yield was on average up 4.9bp five days into the meetings and then rose another 7bp in the five days after, with a 67% upside hit rate. In recent history, US Treasuries sold off even more after the meetings. Thanks to higher US yields, the dollar index DXY on average returned 0,7% after FOMC meetings this year; with 80% hit rate. The only exception was the June 2023 FOMC meeting, with DXY down 0.5% in five days following the meeting. Meanwhile, US curve usually flattened after the FOMC, though the signal was not particularly strong. S&P performed well after the events, rallying on average 0.5% in the aftermath, but only with 60% hit rate. WS is currently pricing in a skip for the September FOMC, 13bp hike by the end of 2023, and 99bp cuts in 2024. This similar-to-June-dots pricing shows market doesn't expect any big shifts in the Fed tone on Wednesday. If that's the case, US yields and USD are likely to follow their historical patterns and move higher. However, a dovish shift cannot be ruled out as UBS Economics expects the median dot in 2023 to revise down with the expected downward revisions to inflation projections. - UBS Strategy