Increased volatility in the currency markets over the past 24 hours which is of course natural as we move closer to today’s Fed decision on their key interest rate policy. We’ve been discussing this decision for some time now and today we will find out what the US policymakers have finally decided, a decision that will dictate the outlook of the major currency pairs for weeks to come.
From our point of view a rate hike is the least possible outcome from today’s meeting, we believe that the most likely scenario is a stable policy for this month with clear guidance that rates will rise this year if the global conditions improve. That as a scenario would involve an initial sell-off for the Dollar and then a slow correction higher for the US currency as investors would understand that we’re moving closer to a hike soon.
Of course this is just one of the possible scenarios that the Dollar could follow today, we could see a number of different reactions from the US currency so we believe that the right way to approach the decision is with caution and a clear mind. Whatever the decision might be its implications will last days if not weeks hence there will be plenty of opportunities from profit on the back of it.
Taking a look at the recent price action and starting with the Euro, the Single currency traded initially lower during the early European trading hours but later in the day it reversed sharply and climbed back around the 1.1300 area. The pair’s outlook is obviously strongly tied to the Fed decision today, a decision to wait for at least another month should instantly drive the Euro to the 1.1400 area and above while the least likely possibility of a rate hike should drive the Euro to 1.1200 initially and then lower.
Contrary to the Euro, the Cable rallied strongly yesterday morning and ended the day significantly higher against the Dollar on the back of the employment-related reports released yesterday. The unemployment rate fell further while the earnings’ component jumped showing impressive improvements in the labour market. As a result the Cable rallied to 1.5500 where we find it this morning waiting for further volatility on the back of the Fed decision.
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