With a much-awaited blockbuster coming up this week, I think it’s about time I come up with a Forex Trading Guide to prepare y’all for the big event. What can we expect for the October FOMC statement?
As always, let’s go through our usual routine of understanding why the event is important, reviewing what happened last time, looking at what’s expected this time, and figuring out how the U.S. dollar might react.
Fed officials usually divulge changes in their economic projections during the rate statement too, and these play a role in shaping policy biases. Even without actual interest rate changes, the Fed outlook makes a strong influence on market expectations, which then affect dollar price action.
This shift to a more cautious stance was enough for the dollar to slam on the brakes with its recent rallies. Fed officials warned that, even though economic data has been showing a lot of progress, the rising dollar might keep price pressures in check and wind up hurting overall economic growth.
“A reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data-dependent,” declared St. Louis Fed President James Bullard in his testimony last week. “And we could go on pause on the taper at this juncture.”
A quick review of the latest set of speeches from Fed officials suggests that the committee is still divided on the issue, with some still lobbying to hike rates sooner rather than later. Any hints on when exactly the Fed might hike rates “sometime next year” could determine where the Greenback might be headed until the end of 2014.
As I’ve discussed in my blog post on the return of currency wars, central banks seem willing to do whatever it takes to keep their respective currencies from appreciating and weighing on price levels. It wouldn’t be so surprising if Fed head Yellen and her gang of policymakers stay on the same cautious route. Do you think this will result to a sharper dollar selloff?
As always, let’s go through our usual routine of understanding why the event is important, reviewing what happened last time, looking at what’s expected this time, and figuring out how the U.S. dollar might react.
What is the FOMC statement all about?
The monthly FOMC statement is when the Fed policymakers make their big announcement on monetary policy adjustments or interest rate changes. As such, this fomc statement us dollareconomic event tends to spark a huge reaction from the U.S. dollar and could even dictate longer-term forex trends for dollar pairs.Fed officials usually divulge changes in their economic projections during the rate statement too, and these play a role in shaping policy biases. Even without actual interest rate changes, the Fed outlook makes a strong influence on market expectations, which then affect dollar price action.
What happened last time?
The September FOMC statement turned out surprisingly dovish, as Fed Chairperson Yellen threw cold water at rate hike expectations for next year. Most market participants expected the Fed to dump the “considerable time” wording when it comes to their time frame for keeping interest rates at their record lows, but this wasn’t the case since the FOMC raised fresh concerns on weak inflation.This shift to a more cautious stance was enough for the dollar to slam on the brakes with its recent rallies. Fed officials warned that, even though economic data has been showing a lot of progress, the rising dollar might keep price pressures in check and wind up hurting overall economic growth.
What’s expected for the October statement?
The upcoming FOMC statement could prove to be an exciting one since it should mark the official end of the Fed’s stimulus program, with the central bank expected to withdraw the remaining $15 billion in asset purchases. However, a few Fed officials have recently spoken about delaying the taper now that weak inflationary pressures are becoming a major concern.“A reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data-dependent,” declared St. Louis Fed President James Bullard in his testimony last week. “And we could go on pause on the taper at this juncture.”
A quick review of the latest set of speeches from Fed officials suggests that the committee is still divided on the issue, with some still lobbying to hike rates sooner rather than later. Any hints on when exactly the Fed might hike rates “sometime next year” could determine where the Greenback might be headed until the end of 2014.
How might the U.S. dollar react?
A more upbeat FOMC statement reassuring markets that the U.S. could stay resilient in the face of another potential global economic slowdown might be enough to keep the U.S. dollar supported and possibly allow the recent rallies to resume. On the other hand, indications that the U.S. central bank is also starting to feel the jitters about deflation and a likely euro zone recession might keep dollar gains in check.As I’ve discussed in my blog post on the return of currency wars, central banks seem willing to do whatever it takes to keep their respective currencies from appreciating and weighing on price levels. It wouldn’t be so surprising if Fed head Yellen and her gang of policymakers stay on the same cautious route. Do you think this will result to a sharper dollar selloff?
Recommended Content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.