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Monetary Policy Expectations are Shifting, And FX Trends Will Follow

Monetary Policy Expectations are Shifting, And FX Trends Will Follow

Talking Points:

• Divergent monetary policy bearings carry among the most potent fundamental influence over the FX markets

• This past week, the Fed kept the door open to a hike in December while the BoJ dashed hopes of more QE

• Ahead, we will see speculation evolve around the BoE, ECB, RBA and SNB paths with scheduled event risk

See the DailyFX Analysts' 4Q forecasts for the Dollar, Euro, Pound and Gold on the DailyFX Trading Guides page.

While seasonal studies for the equity markets may suggest activity cools into the final months of the year, the FX market does not follow so linear a historical reiteration of trend. While risk trends may be settled through tapering volume into year's end (though that may not be the case due to structural shifts these past months and years), the forecasts and speculation surrounding monetary policy paths will not diminish alongside general sentiment. These past few weeks, we have seen the largest central banks set very divergent courses: the Fed left open a December hike; the ECB will consider a QE upgrade the same month; and the BoJ has decided to disappoint those hoping for more stimulus. Ahead, we see the rate debate rage on for the Dollar, Euro and Yen; but we also have distinct event risk to fuel policy speculation for the Pound, Swiss Franc and Australian Dollar. We take the time to update and project the monetary policy bearings of the majors in today's Strategy Video.

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