Many factors are holding back the US dollar rally ahead of the Fed's interest rate meeting. One of them is the more hawkish policies of other central banks.

In recent days, the US Dollar Index (DXY) has been in a limited range between 103.50 to 104.50. This is due to the market still waiting for the release of US inflation data and US policy meetings. The data release is scheduled to be announced next week.

Fed Funds Futures data indicates that the market expects the Federal Reserve will not change the benchmark interest rate for June. Furthermore, the market also believes that there is a prospect of a further rate hike in July.

However, this speculation could change as new data emerges before the FOMC meeting to be held on June 13-14.

"We expect a fair degree of consolidation ahead of the Fed decision next week," said Bipan Rai, North American head of FX strategy at CIBC Capital Markets, "That CPI number's going to be critical for the Fed decision as well, to me it makes sense that we don't see large bets placed either way at this point (buy and sell)."

In addition to the main factors mentioned above, there are 3 additional factors hindering the US Dollar rally this week, i.e:

  1. Loss of safe haven demand with the final agreement reached in the US government debt ceiling negotiations.
  2. Fears of recession risk continue to grow on minor US economic data.
  3. Several central banks' decisions were more hawkish than previously expected.


This week, the Central Bank of Australia and Canada held early meetings. Both Central Banks raised interest rates by 25 basis points, while previously the market expected them not to change policy.

The consequence of this policy was that AUD and CAD exchange rates experienced volatility. AUD/USD briefly touched a high above 0.6700 this morning, before weakening to the 0.6650s. Meanwhile, USD/CAD briefly touched a one-month low, before moving into the 1.3370s today.