Today's spotlight is on the US Federal Reserve's Open Market Committee meeting, a pivotal event following a slew of significant data releases in the US. Although no rate adjustments are anticipated, there's a notable uptick in the likelihood of a hawkish stance from the Fed, especially in rhetoric. April marked the fourth consecutive month of the US dollar's ascent, fueled by surging US yields reaching five-month highs on the prevailing narrative of prolonged hawkishness from the Fed.

The Fed's reliance on data adds an element of uncertainty to forecasts regarding monetary policy trajectory. Any deviation, particularly in inflation, from the central bank's projections could prompt a reassessment. With the three-month average job growth standing at 244 thousand and three-month annualized core inflation at 4.5%, it's probable that Fed officials will maintain the status quo on rates for several meetings. Notably, the employment cost index, the Fed's favored gauge of labor expenses, spiked by 1.2% in the first quarter, surpassing expectations and emphasizing persistent wage pressures, which could exacerbate ongoing inflationary concerns in the US economy. This further bolsters the case for a hawkish tilt from the Fed today. Notably, Fed Chair Jerome Powell omitted the suggestion of potential interest rate cuts "likely being appropriate" at some stage this year during the last meeting, raising questions about the possibility of rate hikes this time. Market sentiment has significantly reduced expectations for rate cuts in 2024, now projecting less than two cuts, a stark contrast from the six anticipated at the beginning of the year. There's even a 25% chance that the Fed won't cut rates at all this year.

Ahead of the Fed's decision, the release of the ISM manufacturing PMI survey and JOLTS job openings data could add further volatility to today's proceedings. Last month's ISM data led to three key observations: firstly, that the manufacturing sector seems to be stabilizing while the services sector may have peaked; secondly, that the US dollar remains responsive to macroeconomic indicators; and thirdly, that concrete data points have a greater impact on the dollar compared to softer indicators.