The FOMC statement scheduled for tomorrow at 18 hours GMT is the event that will impact the currencies of the foreign exchange market this week. To help you optimize your position in forex, here is our usual guide to trading.
The fed raised rates the last time
Last march, the fed has raised its interest rates for the first time in 2017. In reviewing the minutes of the meeting, it is constant as if the fed has acted in the way it is because the country has made solid progress and reached some goals including employment and inflation. According to Janet Yellen, the fed president, this decision reflects the confidence, present and future, of the central bank of the United States in the economy of his country.
The only downside of this last meeting, the vote of Neel Kashkari, president of the fed of Minneapolis, against the rate increase. According to him, the recent data have not demonstrated further progress on the two main objectives of the committee.
The players in the foreign exchange market also seem to have granted credit to the positioning of the latter, because at the end of the day, the dollar had declined. The u.s. currency has, however, taken the bull by the beast during the release of the minutes of the meeting which gives rise to an acceleration of rate increases.
No change expected this month
Analysts point out that the recent reports show, of course, better economic conditions, but these are insufficient to devise a new rate increase. The growth has in fact slowed down, personal income only rose 0.2% and consumer spending stagnated. Construction spending and manufacturing have progressed but at a slower pace than previously. Finally, the personal consumption expenditures, a measure of inflation preferred by the fed amounted to 1.6%, a figure below the 2% target of the central bank of the United States.
The FOMC statement tomorrow will be it a non-event ?
Not necessarily so. If the players in the foreign exchange market do not expect changes in monetary policy tomorrow, several factors could lead to volatility on the pair dollars.
Gaps between expectations and reality
The chances of a rate hike in June increased from 46,6% to 66.3% between the FOMC statement and the publication of the minutes of the meetings. After the French elections, the figures were even higher than 70% before stabilizing 67.4 per cent currently.
However, as we note above, few reports seem to be going in the direction of a new rate increase. Unemployment appears to have declined but the expenditure and income of the consumer is weakened. The sectors of service and manufacturing have slowed.
Volume trading limited
The japanese are currently on vacation for a week, the europeans come to celebrate the feast of work, and some traders may stay on the sidelines of the publication of the NFP, then we could have limited movements or exaggerated in response to the publication. If the fed decides to cite the weaknesses of recent economic reports, the bulls of dollars could realign their expectations.