Fed Comments will be the Key Today

Today we will see three Fed presidents, and a FOMC member make a speech. It will likely cause volatility for the dollar and major currencies pairs. We will also see release of the US Markit Manufacturing PMI for October, at 13:45 GMT today.

The New York Fed president Dudley, and the St Louis Fed president Bullard, will make a speech at 13:05 GMT today. Dudley made a hawkish comment last Thursday. Bullard said a rate hike this year as ‘base case’ on 30th September. They will likely re-state the previous hawkish comments today. If so, the dollar will firm again.

Chicago Fed president Evans will also make a speech at 17:30 GMT. He said two weeks ago that he sees no urgency for a December rate hike as the inflation still remains below the Fed’s 2% target. If he also re-states a dovish comment today, then it will likely restrain the bullish momentum of the dollar.

The last speech today will be made by FOMC member Powell, at 18:00 GMT.

The dollar index surged 1.17%, from last Thursday to Friday, to a seven-month high at 98.79 last Friday. The rally was helped by the increase of market expectations on a December rate hike:

Firstly, the latest polls surveyed after the third presidential TV debate shows that Clinton leads Trump 50 to 38 percent, her highest support point to date. Trump possesses an extreme political and economic stance, and is in favour of a weak dollar. If he wins, it implies immeasurable uncertainties for US prospects. In comparison to Trump, Clinton seems to be more secure and predictable, implying less risks. As a result, when Clinton leads, the dollar is likely to rally. The November Fed interest rate decision will be announced on the 2nd, It seems to be unlikely for the Fed to raise rates before the outcome of the presidential election.

Secondly, the recent Fed members’ hawkish statements have escalated market expectations. Fed Vice Chair Fischer has warned that low rates can lead to longer and deeper recessions. New York Fed president Dudley commented that the Fed will likely raise interest rates later this year, if the US economy remains on track.

Thirdly, the ECB president Draghi stated last Thursday that, If necessary, the large-scale asset purchase programme will last longer than scheduled, until inflation reaches the ECB’s target. The statement weighed on the Euro and lifted the dollar.

Fourthly, the release of Initial Jobless Claims and Philadelphia Fed Survey figures last Thursday, indicating the US labour market and economy still remain sound.