Federal Reserve Members to Jawbone USD

The Federal Open Market Committee’s (FOMC) April meeting minutes showed the biggest highlight from the Federal Reserve policymakers’ pow-wow was an interest rate hike in June isn’t going to happen.
Regardless, the USD got a boost from Fed members’ comments that made clear they are pushing for a rate hike sooner rather than later. Market watchers had anticipated this given the soft economic data out of the U.S. in the first quarter of 2015. The central bank is adamant that the negative factors that have slowed down growth are transitory. The market is now expecting the earliest rate hike to come in the September FOMC meeting. Traders’ reasons for weighing June or September as the likeliest months for a rate hike is simple enough: those two meetings are followed by a press conference with Fed Chair Janet Yellen. It’s plausible Yellen would want to address the market and answer questions to avoid confusion.

Thanks to the FOMC statement, the greenback regained some ground versus the EUR after the single currency fell significantly on the back of comments from two European Central Bank (ECB) members. Benoît Coeuré and Christian Noyer, French members of the ECB’s executive board, recently revealed details about the bank’s €1.1 trillion quantitative easing (QE) program.

Coeuré said the ECB will front-load its debt purchases to avoid an excess of bond buying during the quiet summer trading days. Noyer, meanwhile, stated that the ECB could go beyond the QE amounts already announced in order to hit its inflation target. The two statements reassured markets of the commitment from the eurozone’s policymakers to stick with its stimulus program until Europe’s economy shows signs of sustainable growth. There were reports later in the week that implied the ECB did not publish the comments right after they were made, opting to wait until 7 a.m. British Summer Time. The central bank has pledged to be consistent and is chalking it up to an internal procedural error. The error was seen as the trigger to the EUR losing close to 1% versus the USD.

Strong U.S. inflation data on Friday lent some credibility to the Fed’s optimism and pushed the EUR/USD to 1.1020. Next week, three members of the FOMC will have the chance to keep the USD bid as they make their cases for an interest rate hike before the end of the year.

The speeches from these Fed officials will be evenly spread out during the week, and they will give the forex market plenty to chew on regarding the strength of the U.S. economy until the country’s gross domestic figures (GDP) are released on Friday.

  • Monday, May 25 11:00 a.m. USD FOMC member Stanley Fischer speaks
  • Tuesday, May 26 8:10 p.m. USD FOMC member Jeffrey Lacker speaks
  • Thursday, May 28 2:20 a.m. USD FOMC member John Williams speaks
Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza