FX Market to focus on FOMC Language and Projections

The Federal Open Market Committee (FOMC) will steal some of the spotlight from the Greek negotiations in Europe on Wednesday, June 17 at 2:00pm EDT. The U.S. central bank will most likely not raise the benchmark interest rate this meeting as the pace of the American economy has slowed down after a harsh first quarter, but will update its economic projections for growth and inflation that will give the market food for thought on how soon a rate hike might come.

The market had at one time priced in the eventuality of a U.S. rate hike in June. The FOMC will meet with little to no expectation of a rate hike that is now forecast to occur in September or October. The September FOMC meeting has a bit of an edge, because like the June meeting, it has a press conference scheduled after the release of the bank’s monetary policy statement. October might work better in terms of timing, but it is unclear if the Federal Reserve would want to announce the highly expected interest rate hike with no chance for a Q&A.

The World Bank joined the International Monetary Fund in warning the Fed about hiking rates too soon. The World Bank’s bi-annual Global Economic Prospects report highlights the risks to the global economy, and in particular emerging markets if higher rates arrive before the U.S. economy is ready for them. So far the data out of the U.S. has been mixed at the best of times. Employment remains the strongest indicator, with positive surprises like the jump in U.S. retail sales in May.

The EUR/USD has been jolted to and fro by the current state of Greek debt negotiations in Europe. As a Grexit scenario becomes closer to reality the currency pair has traded in a wide range (1.1190 to 1.1325) as uncertainty keeps altering market expectations the further apart the creditors and Greece stand on a daily basis.

Investors and market watchers will be awaiting the statement from the FOMC to seek clues about what the Fed has in store down the line, as the June meeting has already been discounted as the chosen one for the what despite the warnings will be an imminent arrival of higher rates.

Federal Reserve Chair Janet Yellen has been validated by the resilience of the U.S. economy as some of the effects that made the first quarter growth data disappoint seem to be working themselves out of the economy. U.S. retail sales posted a stronger than expected 1.2 percent growth in May. American consumers had confounded economists by their lack of spending given the savings from lower gas and food prices. US. manufacturing continues to lag as a strong USD has pushed the industry to a recession. The uneven recovery is what makes the market give 50/50 chances to a rate hike in September versus December and the dollar’s cause will be pushed or pulled as those expectations shift.

USD events to watch this week:

Wednesday, June 17

  • 2:00pm USD FOMC Statement
  • 2:30pm USD FOMC Press Conference

Thursday, June 18

  • 8:30am USD CPI m/m
  • 8:30am USD Unemployment Claims
  • 10:00am USD Philly Fed Manufacturing Index

*All times EDT For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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