FOMC Preview: Fate Of U.S. Dollar Hinges On Fed Forecasts

TRADING THE NEWS: FEDERAL OPEN MARKET COMMITTEE (FOMC) INTEREST RATE DECISION

The Federal Open Market Committee (FOMC) interest rate decision may weigh on EUR/USD as the central bank is widely expected to deliver a 25bp rate-hike, and the fresh updates coming out of the central bank may boost the appeal of the U.S. dollar should Fed officials show a greater willingness to implement higher borrowing-costs over the coming months.

(Click on image to enlarge)

Image of DailyFX economic calendar

The FOMC appears to be on track to further normalize monetary policy in the second-half of the year as the U.S. economy nears full-employment with inflation tracking above the 2% target, and the central bank may show a greater willingness to extend the hiking-cycle as ‘the Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.’

(Click on image to enlarge)

Image of Fed interest rate forecast

In turn, a growing number of Fed officials may adjust the longer-run forecast for the benchmark interest rate to reflect a steeper yield curve, and a batch of hawkish rhetoric is likely to boost the appeal of the U.S. dollar as it fuels bets for four rate-hikes in 2018.

However, Chairman Jerome Powell and Co. may stick to the current script as ‘inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term,’ and ongoing forecasts for a long-run neutral Fed Funds rate of 2.75% to 3.00% may drag on the greenback as Fed officials appear to be in no rush to alter the outlook for monetary policy.

IMPACT THAT THE FOMC RATE DECISION HAS HAD ON EUR/USD DURING THE PREVIOUS MEETING

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY

2018

05/02/2018 18:00:00 GMT

1.50% to 1.75%

1.50% to 1.75%

+28

-7

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