We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Gold
Bullish
Oil - US Crude
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Bitcoin
Mixed
More View more
Real Time News
  • How can traders avoid #FOMO in trading? Start by implementing a well-heeled plan taking only four hours per week. Get your insight from @JStanleyFX here: https://t.co/vwUShQPc27 https://t.co/DoVBd1l1oO
  • #Silver is a precious metal commodity that investors use as an inflation hedge and safe-haven asset. Find out what are some strategies and tips to trade silver here: https://t.co/k4tVcFuwxW #CommoditieswithDailyFX https://t.co/zXCSmH2HLX
  • Markets are trying to maintain a bullish tilt as a new week rolls around, a look ahead at the charts of the #Dow, #DAX, and #FTSE. Get your technical analysis on major world indices from @PaulRobinsonFX here: https://t.co/bYjRDvQsdM https://t.co/mbg0rUbv3K
  • Trade conflict is clearly awful for the broad world economy, but some countries are already benefiting from it. More stand to do so. Spotting them early could be profitable. Get your update on the #tradewar from @DavidCottleFX here: https://t.co/og0VAPAqwm https://t.co/xB8hYUj4OA
  • #Gold prices may suffer if better-than-expected US economic data and progress on US-China trade negotiations cool 2020 Fed rate cuts and alleviate demand for anti-fiat hedges. Get your $XAUUSD market update from @ZabelinDimitri here: https://t.co/3ula2sUpqL $gld https://t.co/2iZwxcm3wP
  • What's the difference between leading and lagging indicators? Find out from @RichardSnowFX here:https://t.co/vGx8HCagF5 https://t.co/KCZ48rDnhy
  • Why financial market traders must monitor both monetary and fiscal policy? Find out from @MartinSEssex here: https://t.co/Fkzk88Y5gm https://t.co/tTXcw1b7Tp
  • RT @dlacalle_IA: ... “Temporary” Fed plans to double repo market intervention to avoid cash crunch https://t.co/j6N3Qmo6HX
  • RT @HeathaT: The @USTradeRep "fact sheet" on the US-China deal is pretty light on details, but if you're looking for something written down…
  • The inside bar pattern occurs regularly within the financial markets. Incorporating the inside bar strategy within a trading system can enhance a trader’s market analysis technique. Find out how you can use it from @WVenketas here: https://t.co/E3EWOYTYNw https://t.co/1H5UASpHb7
US Dollar Response to Fed Rate Decision, Explained

US Dollar Response to Fed Rate Decision, Explained

2019-10-31 02:00:00
Ilya Spivak, Sr. Currency Strategist
Share:

US DOLLAR, FEDERAL RESERVE, FOMC, POWELL – Talking Points:

  • US Dollar sharply lower after the Fed signals pause in rate cut cycle
  • Stocks up, sentiment buoyed despite less scope for near-term easing
  • Bond yield drop suggests FOMC is revisiting dovish pre-commitment

Where will markets end 2019? See our Q4 forecasts for currencies, commodities and stock indexes!

The US Dollar seesawed as the Federal Reserve shifted into wait-and-see mode having issued its third rate cut of 2019 on October 30. The policy statement conspicuously dropped the pledge to “act as appropriate to sustain the expansion” – a nod to pausing the rate cut cycle. Fed Chair Jerome Powell then changed the phrase in the post-meeting presser, saying current policy setting is “likely to remain appropriate”.

The Greenback acknowledged the rate cut pause with a modest rise, then plunged. The move lower was accompanied by a rally in the bellwether S&P 500 stock index, implying an improvement in underlying risk appetite across financial markets. At first blush, that seems to mark a notable departure from recent dynamics, where prospects for more stimulus produced risk-on results while hesitation soured sentiment.

Chart of the US Dollar, S&P 500 and bond yields' response to the FOMC rate decision

Chart created with TradingView

DID FINANCIAL MARKETS BELIEVE FED CHAIR JEROME POWELL?

A possible explanation might be that the markets were genuinely heartened by Mr Powell’s cautiously optimistic read on the US economy. He said risks to the outlook have moved in a positive direction since officials’ last meeting, citing a strong household sector, an improvement in trade policy developments and a “materially” lower chance of a no-deal Brexit.

That would be consistent with the recent changes in the 2020 rate cut outlook. Expectations priced into Fed Funds futures reveal that markets have been downgrading scope for easing since late August. Traders now expect just one rate cut next year versus the two projected just two months ago. USD fell against the backdrop of this shift, which might reflect ebbing haven demand courtesy of an improving landscape.

Chart of the US Dollar falling as 2020 Fed rate cut expectations moderate

Chart created with TradingView

FED APPEARS TO PRECOMMIT NOT TO RAISE INTEREST RATES

However, that seems inconsistent with the other bit of the post-FOMC market reaction: a drop in Treasury bond yields. If Mr Powell was truly able to generate some cheer, they would have probably tracked stocks higher. That they moved in the opposite direction might instead suggest that markets now perceive the Fed as having adopted a rigidly anti-tightening bias.

Chair Powell offered some clues in this regard. He said officials “don’t see inflation moving up right now,” adding that it “seems to be settling in below [the Fed’s target at] 2 percent.” He then pointedly added that the policy-setting committee “is not thinking about raising rates right now.” That signals that the central bank’s reaction function has been altered such that it will pointedly avoid tightening.

This kind of tacit pre-commitment might channel the frustration of a central bank struggling with building internal consensus – the recent rate cut cycle has been marked by vocal dissent from some FOMC members – as well as its apparent inability to actually deliver looser credit conditions. Perhaps Mr Powell and like-minded policymakers hoped to talk rates down by creating dovish certainty. That seemed to work...for now.

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.