Dollar Lower Ahead of Fed Statement

Fed meeting keeping markets in suspense

The US dollar was weaker on Tuesday almost 24 hours ahead of the release of the Federal Open Market Committee (FOMC) rate statement. The biggest question will not be on interest rates as they are expected to remain unchanged, but on the details of the Fed’s plan to reduce its bond holdings. North Korea was once again in the news when US President Trump spoke to the UN and condemned the regime that is leaving him no choice but to destroy the Asian nation.

The U.S. Federal Reserve will publish its rate statement on Wednesday, September 20 at 2:00 pm EDT. The US central bank is not expected to hike interest rates at this time, but is anticipated to announce the start of its balance sheet reduction initiative. The Fed will also release its updated economic projections and there will be a press conference with Fed Chair Janet Yellen at 2:30 pm EDT.

The Bank of Japan (BOJ) will publish its monetary policy statement on Wednesday, September 20 at 11:50 pm EDT with a press conference to follow on Thursday at 2:30 am EDT. The Japanese central is not expected to make a change to its monetary policy as inflation remains stubbornly low despite unprecedented stimulus by the BOJ. Growth has continued its upward trend but with little help from inflationary pressures no reduction is stimulus is in the horizon.

The EUR/USD gained 0.326 percent in the last 24 hours. The single currency is trading at 1.1995 after touching daily highs of 1.2007 prompting the European Central Bank (ECB) to release a disagreement between policymakers about the end date of the quantitive easing (QE). The euro received a boost form the latest ZEW survey of economic sentiment. The German survey rose ahead of this weekend’s elections in a sign of stability, helping the single currency move forward against the USD.

Angela Merkel is on track to remain Germany’s Chancellor despite an increase in challengers. Merkel’s party the Christian Democrats are expected to win, but the question will be which party they will form a coalition to rule. Economic growth in Europe has fuelled optimism, but inflation remains low causing a headache for the ECB as it cannot fully commit to removing stimulus with deflation risks still present.

The Fed was able to remove stimulus in a gradual manner and has now hiked twice in 2017. The USD has received some of the benefits from a tightening economic policy, but political uncertainty has impaired the greenback. Another factor to look for in tomorrow’s statement and press conference is any hint of a December rate hike. The market had cooled on a final rate raise this year, but is now estimating the probability at higher than 50 percent.

Market events to watch this week:

Wednesday, September 20
4:30am GBP Retail Sales m/m
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Economic Projections
2:00pm USD FOMC Statement
2:00pm USD Federal Funds Rate
2:30pm USD FOMC Press Conference
6:45pm NZD GDP q/q
11:50pm JPY Monetary Policy Statement
Thursday, September 21
Tentative JPY BOJ Policy Rate
2:30am JPY BOJ Press Conference
8:30am USD Unemployment Claims
Friday, September 22
8:30am CAD CPI m/m
8:30am CAD Core Retail Sales m/m
8:30am All Day NZD Parliamentary Elections

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

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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