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US Dollar Likely to Rise After FOMC Policy Announcement

US Dollar Likely to Rise After FOMC Policy Announcement

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • US Dollar Likely to Rise Following FOMC Monetary Policy Announcement
  • Markets Expect Tightening in September But a July Rate Hike is a Possibility
  • See Economic Releases Directly on Your Charts with the DailyFX News App

A quiet economic calendar in European trading hours is likely to see traders wholeheartedly focused on the outcome of the Federal Reserve monetary policy meeting. Markets expect the central bank to withhold an interest rate hike this time around, putting the focus on the statement accompanying the announcement for further guidance.

The Fed’s June meeting saw officials flattening their expected tightening trajectory (compared with the March assessment) but continue to call for two rate hikes in 2015. A hawkish lean was reinforced in comments from Chair Janet Yellen at her semi-annual Congressional testimony earlier this month. Analysts’ baseline consensus leans toward liftoff in September (based on published content tracked by Bloomberg). Meanwhile, Fed Funds futures are pricing in the first hike in October.

On balance, this suggests that with only three Fed meetings left after July’s sit-down, the Fed will now need a palpable rhetorical shift in the hawkish direction to set the stage for on-coming tightening. Such an outcome is likely to boost the US Dollar and may weigh on risk appetite, offering support to the Yen while hurting sentiment-geared commodity bloc currencies. Follow-through may be limited however in that such a scenario would fall broadly in line with the markets’ established thinking.

Outsized volatility is likely if the Fed delivers a surprise rate hike or opts to for continued ambiguity. The former scenario seems far more likely than the latter. The situation in 2015 echoes a similar one last year, when a dovish shift in investors’ bets following a soft first quarter missed the mark as the FOMC steadily tapered QE3 asset purchases and ended the program on schedule. A parallel result this time would imply a mid-2015 hike as envisioned at the start of the year, making a move in July entirely plausible.

A surprise rate increase stands to deliver an amplified version of the aforementioned “hawkish” scenario, with the greenback racing higher while risk aversion sweeps the markets. On the other hand, a non-committal posture would contradict much of what the Fed has signaled in recent weeks and months. Such a result is likely to weigh on the US unit and may offer support to sentiment.

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Asia Session

GMTCCYEVENTACTEXPPREV
23:50JPYRetail Trade (YoY) (JUN)0.9%1.1%3.0%
23:50JPYRetail Sales (MoM) (JUN)-0.8%-0.9%1.7%
23:50JPYLarge Retailers' Sales (JUN)-0.3%1.8%5.3%
01:45CNYWestpac-MNI Consumer Sentiment (JUL)114.5-112.3
05:00JPYSmall Business Confidence (JUL)-46.9

European Session

GMTCCYEVENTEXPPREVIMPACT
06:00CHFUBS Consumption Indicator (JUN)-1.73Low
06:00EURGerman GfK Consumer Confidence (AUG)10.110.1Low
08:30GBPNet Consumer Credit (JUN)1.1B1.0BMedium
08:30GBPNet Lending Sec. on Dwellings (JUN)2.0B2.1BLow
08:30GBPMortgage Approvals (JUN)66.0K64.4KMedium
08:30GBPM4 Money Supply (MoM) (JUN)-0.5%Low
08:30GBPM4 Money Supply (YoY) (JUN)-0.7%Low
08:30GBPM4 Ex IOFCs 3M Annualised (JUN)-4.5%Low
10:00GBPCBI Reported Sales (JUL)2929Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.09051.09831.10211.10611.10991.11391.1217
GBPUSD1.53901.54901.55511.55901.56511.56901.5790

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

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