Over the last 15 years, the USD has seen strength at the start of May. However, tonight the Fed will meet and will want to hike interest rates in order to contain inflation which is at 8.5% in the US. One expectation is that we will see a ‘buy the rumour, sell the fact response’ in the USD post the Federal Reserve meeting. This is because a lot of hawkishness is already priced in with investors expecting a 50bps rate hike today, another 50 bps rate hike shortly after, and then one more 50 bps rate hike after that as well as the start of QT.

So, this could be a scenario where the seasonal strength in the US doesn’t work out. Or perhaps the weaker USD may come into full effect a few days after the FOMC event. Now there are lots of moving parts with the USD at the moment, but investors should be watching for fresh directional moves post the Fed meeting tonight at 1900 UK time.

Major Trade Risks: If the Fed is even more hawkish tonight than expected the USD could see a break out of major multiyear resistance on the USD index chart.