Tuesday September 17, 2019 - 14:08:13 GMT
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How Will the Forex Market React to Wed's FOMC Decision?
The long awaited FOMC meeting is underway and the focus should be more on what comes next. With a 25bp rate cut widely expected, the surprise would be a more aggressive 50bp rate cut or no change, the latter seen as highly unlikely.
This suggests expectations of future Fed policy should be the main focus with attention not only on the accompanying statement and press conference but also on how many dissent in the decision. In this regard, expectations of another rate cut will be dampened should there be a larger number of FOMC members dissenting the decision and vice versa if there is close to a consensus.
If I was in the Feds shoes, I would be non-committal going forward as there is no reason to send a clear signal other than to reiterate it will do whatever is necessary to support the economy.
As for the forex market reaction, it may be shaped by expectations of future policy more than the actual decision, which should be well discounted. So watch how the US Treasury market reacts as higher yields would typically be dollar supportive although global bond markets have been moving in lockstep recently.
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In any case, expect volatility once the decision is announced but barring a surprise, logic says we should be back to square one once the dust settles, which means speculation whether the Fed will cut rates at the December meeting.
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