Wall Street is expected to hike the rate hike of this time.
Fed 's rate hike cycle is expected to start next year, and Bloomberg said traders believe the rate hike will end soon after the end of 2023.
This expectation is reflected in the foreign exchange market.
According to Bloomberg, Euro dollar futures and options counted the price of multiple interest rate hikes in 2022 and 2023, but only included the price once in 2024, indicating that traders have expected a relatively short and slight expectation of this tightening cycle, and only expected a rate hike after 2023.
This trend has been supported by the market. On Tuesday, the spread trading between the December 2023 Euro dollar contract and the 2025 Euro dollar contract was sold out by 20,000 orders. Spread trading is priced at 28.5 basis points, which is basically the market's bet on the rate hike when the premium for interest rate hikes gradually weakens in 2023. Trading such as
is not an exception. Morgan Stanley previously suggested that investors bet that “the price spread of euro contract between the end of 2022 and the end of 2024 will be widened”, but the proposal was later adjusted to “the price spread between September 2022 and December 2023 will be widened”. In short, investment banks’ advice suggests where they expect rate hikes to peak. The pricing of the
market has been far lower than the Federal Reserve's expectations for a rate hike after 2023. Currently, by 2023, market trends match the median in the dot charts that officials individually predict. But after that, the market is obviously more modest than policy makers. By the end of 2025, the market price was only half of the Fed's long-term expectation of 2.50% (about 1.25%).
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