The US Dollar may rebound as a status-quo FOMC policy statement clashes with a recent dovish shift in financial markets’ Fed interest rate hike expectations.
Talking Points:
FX Markets to Look Past European News-Flow, Focus on FOMC Outcome
US Dollar to Rise if Static Fed Statement Clashes with Dovish Market Views
See Economic Releases Directly on Your Charts with the DailyFX News App
A quiet economic calendar in European trading hours is likely to see traders looking ahead to what is arguably the week’s most significant bit of scheduled event risk: the Federal Reserve monetary policy announcement.The rate-setting FOMC committee is expected to deliver a final $15 billion “taper” of asset purchases, ending the QE3 stimulus program. The probability of a surprise extension seems overwhelmingly unlikely. That means the announcement’s market-moving potential will be found in guidance for the timing of the first subsequent rate hike inferred from the accompanying policy statement.
Recent weeks have witnessed a moderation in the post-QE3 Fed tightening outlook as global slowdown fears encouraged speculation that the central bank will want to safe-guard the US recovery from knock-on effects of weakness elsewhere by delaying normalization. Indeed, Fed Funds futures now reveal priced-in expectations of a rate hike no sooner than December of next year, far later than prior bets calling for a move around mid-year.
A change in the FOMC statement reflecting renewed concerns about persistently low inflation would validate this shift, weighing on the US Dollar. Alternatively, a restatement of the status quo would hint the markets’ newfound dovish lean has over-reached, offering lift to the benchmark currency. Considering the Fed’s steady hand through the first-quarter slowdown in US economic performance, the latter scenario seems more probable. We are now short EURUSD and long USDCHF.
FXCM, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials. FXCM, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXCM, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.
Recommended Content
Editors’ Picks
EUR/USD advances to near 1.0750 as risk appetite regains balance
EUR/USD extends its winning streak for the third successful day, trading around 1.0730 during the Asian session on Friday. The risk-sensitive currencies like the Euro gain ground as risk appetite regains balance ahead of US Nonfarm Payrolls.
GBP/USD advances to 1.2550, all eyes on US NFP data
The GBP/USD pair trades on a stronger note around 1.2540 amid the softer US Dollar on Friday. The US Federal Reserve Chair Jerome Powell delivered a modest dovish message after the meeting on Wednesday, which weighs on the Greenback.
Gold lacks firm near-term direction, remains stuck in a range ahead of US NFP
Gold price struggles to gain any meaningful traction amid mixed fundamental cues. The Fed’s less hawkish outlook drags the USD to a multi-week low and lends support. Bets for a delayed Fed rate cut and a positive risk tone cap gains ahead of the US NFP.
Solana price pumps 7% as SOL-based POPCAT hits new ATH
Solana price is the biggest gainer among the crypto top 10, with nearly 10% in gains. The surge is ascribed to the growing popularity of projects launched atop the SOL blockchain, which have overtime posted remarkable success.
US NFP Forecast: Nonfarm Payrolls gains expected to cool in April
The NFP report is expected to show that the US economy added 243,000 jobs last month, sharply lower than the 303,000 job creation seen in March. The Unemployment Rate is set to stay unchanged at 3.8% in the same period.