Risk-on Fed themes, US Dollar at a crossroads ahead of the red news and next week's Fed

Investors are waiting for the first Federal Reserve meeting of the year in early February to see if it raises interest rates by 25 basis points (bps) or 50 bps as it did in December after four straight 75 bps increases. We have entered the Federal Reserve blackout period while the market is eagerly pricing in another step down in its tightening policy.

The sentiment could be boosted at the open this week on the back of the Wall Street journal's weekend article stating that ''Federal Reserve officials are preparing to slow interest-rate increases for the second straight meeting and debate how much higher to raise them after gaining more confidence inflation will ease further this year.''

''They could begin deliberating at the Jan. 31-Feb. 1 gathering how much more softening in labour demand, spending and inflation they would need to see before pausing rate rises this spring.''

''In recent public statements and interviews, Fed officials have said slowing the pace of rate increases to a more traditional quarter percentage point would give them more time to assess the impact of their increases so far as they determine where to stop,'' the article continued. 

US Dollar update

The greenback has been mostly on the defensive as a slew of disinflationary data sent bulls onto the backfoot in recent days. Also, US Treasury yields have been trending lower all month but rose on Thursday and Friday. If this were to continue this week, the greenback could recover into red news on the calendar with US Personal Consumption and Expenditure as well as US Gross Domestic Product on the cards. 

The US Dollar is now at a crossroads, pressured on the front side of the resisting trendline with 101.30 lows in sight as a potential death-line for the week ahead.