When is the Fed interest rate decision and how could it affect EUR/USD?

The Federal Reserve will announce its decision on monetary policy at 18:00 GMT.  Jerome Powell will hold a press conference at 18:30 GMT. 

Key notes

The Federal Reserve is widely expected to lower the Fed Funds rate by 25 basis points to 1.75 - 2.00% range. It would be the second rate cut since the 2008 financial crisis. If the central bank delivers as expected, the statement and Powell’s words will be watched closely for clues about the future path of monetary policy, on how the “mid-cycle adjustment” would continue. 

Critical developments took place over the last hours, with one of the including the Fed. The attack on Saudi’s oil installations pushed oil prices sharply higher (then retreated significantly) and increased geopolitical concerns. Another event was the increase in US money market rates. Repo rates spike up to 10% and the New York Fed responded and made $75bn available through a repo auction, an operation not used at such scale since 2008. If the Fed does not mention, Powell will be asked about the event. 

“Market pricing for the September FOMC event has turned less dovish recently on news of potential if partial, trade agreement between the US and China and strengthening domestic inflation. We believe the committee remains deeply divided regarding the appropriateness of July’s cut, as well as possible cuts in the near future, and anticipate that the ‘dot plot’ will continue to reflect this; we expect little change to the economic outlook and see the median path of policy signalling a slight possibility of a third cut in 2019, after policy easing in July and, we expect, September”, mentioned analysts at Standard Chartered. They see two dissenting votes. How FOMC members vote could provide another surprise in either direction. 

At TDS, economists expect a 25bp cut and the doors open to further easing. “The dot plot should reflect a number of FOMC voters projecting 75bp of total cuts this year,  but not enough to move the median lower to that level. Presidents George and Rosengren should dissent again at the meeting.”

At the press conference, Powell will have the opportunity to clarify Fed’s intentions or to signal indirectly another direction that the one of the statement. “Fed Chair Powell may face a challenge articulating the policy outlook given the division of views, however, we expect him to emphasise the Fed will do what it can to sustain the expansion”, explained ANZ analysts. 

Implications for EUR/USD 

The EUR/USD awaits the outcome with a bullish tone, after making a strong rebound on Tuesday, recovering from Monday’s losses and rising back above the 20-day simple moving average. 

If the Fed does not cut rates (very unlikely) the US Dollar would jump higher. It could also rise if the message turns out to be more hawkish or less dovish that market expectations. Under such scenario, EUR/USD should move lower. For a test of 2019 lows at 1.0925, the pair needs first to make a clear break of the 1.0990 support. 

On the opposite direction, if the Fed shows rising concerns about the outlook and/or cut more-than-expected and/or signals an aggressive stimulus plan for the future, the US Dollar should drop across the board. That would also be the case, but more modestly, it the statement and the projections are seen as dovish by market participants. Such scenario should help EUR/USD remain above the 20-day SMA at 1.1045.  On top of 1.1080, a test of 1.1105/10 could be seen. A daily close above 1.1110 would be a positive technical development for the Euro, exposing the 55-SMA at 1.1130. 

About the interest rate decision 

With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Federal Reserve meets​ at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency. A rate cut tends to weaken the local currency. If rates remain unchanged (or the decision is largely discounted), attention turns to the tone of the FOMC statement, and whether the tone is hawkish, or dovish over future developments of inflation.

About the FOMC statement 

Following the Fed's rate decision, the FOMC releases its statement regarding monetary policy. The statement may influence the volatility of USD and determine a short-term positive or negative trend. A hawkish view is considered as positive, or bullish for the USD, whereas a dovish view is considered as negative, or bearish.