USD Price at Risk as the FOMC Prepares to Raise US Interest Rates

USD price, news and analysis:

• An increase in US interest rates Wednesday is almost certain.
• With a hike already priced in to USD pairs, that could weaken the currency on a ‘buy the rumor, sell the fact’ trade.

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USD setback possible

An increase in US interest rates by the Federal Reserve is almost certain later Wednesday, with the CME FedWatch tool suggesting a probability of 95% that the Federal Open Market Committee will raise its target rate by a quarter of a percentage point.

However, there is a possibility that USD will drop in response to the decision on a typical ‘buy the rumor, sell the fact’ trade. Even a hint that US rates will be hiked again in December might fail to boost the currency as the probability of a further hike is already calculated to be almost 79%.

Against the Euro, for example, the current upward trend in EURUSD may well persist, with trendline resistance at 1.1816 a possible first target.

EURUSD Price Chart, Daily Timeframe (May 29 – September 26, 2018)

Chart by IG

Note that US-China trade war fears seem to be easing after China’s response to the latest US tariffs was less aggressive than it might have been, while the US 10-year Treasury note yield has dipped early Wednesday in Europe to 3.085%. That is offsetting news Tuesday that US consumer confidence increased by more than expected in September, highlighting the strength of the US economy.

On the other side of the coin, hawkish comments by the European Central Bank are outweighing concerns about the Italian budget – suggesting EURUSD could take a shot at June 14’s 1.1852 high.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex