A year ago, the Federal Funds Rate (upper bound) was closer to zero, the FOMC has since then delivered 450 basis points of rate hikes. The magnitude of the move came ahead of most G10 central banks, therefore, USD rates overshadowed the developed market
The differential between the FFR and the average G10 central bank policy rate is now shrinking as the group is catching up (ex-Bank of Japan)
While the Fed has slowed its pace of rate hikes to 25bps steps, the ECB is still expected to deliver moves twice the size in March and May
The December SEP showed the FOMC median FFR forecast at 5.1% for 2023, which is just 30bps higher from where we are. Of course, given the latest developments in the labour market and price dynamics, we are set to receive a revision of these projections in March
However, the latest read on implied policy rates shows the market pricing the Fed adding only 58bps for 1yr ahead. This compares to 144bps for the ECB, 100bps for the RBA, 70Bps for the BoE
There is no clear way to come up with which central banks will deliver in line with market expectations but if these pricing were to materialize, the premium between the FFR and G10 policy rates is set to correct lower and therefore take the carry attractiveness of the dollar with it

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