Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

FOMC Preview: Taper Talk And Impact On U.S. Dollar

By Kathy LienForexJun 15, 2021 21:08
uk.investing.com/analysis/fomc-preview-taper-talk-and-impact-on-us-dollar-200481464
FOMC Preview: Taper Talk And Impact On U.S. Dollar
By Kathy Lien   |  Jun 15, 2021 21:08
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
The outcome of Wednesday’s Federal Reserve monetary policy announcement could set the stage for how the U.S. dollar and currencies trade over the next month. With that in mind, the greenback maintained its bid ahead of rate decision. USD/JPY hovered near two-month highs above 110 as EUR/USD held below 1.2150. Today’s U.S. economic reports were supposed to have a big impact on trader positioning into FOMC, and the fact that investors ignored weaker reports is an important sign of how sentiment is skewed into the event. They continue to look past weak data in favor of rising prices and a stronger recovery.
 
Retail sales fell 1.3% in the month of May, which was significantly weaker than anticipated. With declining auto supply, economists forecasted a decline in spending, but they expected retail sales excluding autos to rise by 0.2%. Unfortunately core retail sales fell 0.7%, as consumers shift spending from goods to services. Demand for home improvement gave way to more experience spending on restaurants and lodging. Manufacturing activity in the New York region also grew at its weakest pace in three months, according to the Empire State survey. Yet, the U.S. dollar’s buoyancy tells us that investors expect the Fed to cave to rising prices and address rather than avoid the issue of reducing asset purchases, especially with producer price growth hitting a record high.   
 
Investors need to beware of the potential for disappointment from the Fed. U.S. policy-makers have insisted on every occasion that the rise in prices is transitory and will fall as pent up demand and supply-chain disruptions ease. The prospects for the recovery are strong, but consumer demand and job growth over the past two months have been subdued. Like the ECB, which avoided taper talk last week, if the Fed is cautious, it will want to wait for real data improvements before admitting that it is time to start talking about tapering its $120-billion-a-month bond-buying program. 
 
On the one hand, however, market conditions are ideal for taper talk to begin. Stocks are strong, volatility is low and investors are optimistic, which provides a cushion for a deep correction. By vaguely mentioning that it is looking into reducing bond buys, it gives investors an entire summer to discount the changes before the Fed’s Jackson Hole summit in August.  
 
With no changes in monetary policy expected, the main focus for investors tomorrow will be the Fed’s 'dot plot' forecast and Fed Chair Jerome Powell’s press conference. Any discussion of adjusting the pace of bond purchases will be revealed in Powell’s speech and clarified in the question-and-answer period. Back in March, when the Fed’s economic projections were last updated, the dot plot showed a split of 11-7 against a 2023 interest rate hike. Now, it is widely believed that the forecasts will shift to tightening next year.
 
If you are trading FOMC, here’s the rundown of what will happen tomorrow:
 
The U.S. dollar could see an initial pop at 2 p.m. New York time if the dot plot shows expectations for the first rate hike shifting to 2023. After that we expect consolidation, with a bias to the upside before Powell speaks. If he acknowledges the need to begin taper talk, EUR/USD could drop towards 1.20 and USD/JPY could make a run for 111. However, if he avoids talking taper and downplays the immediate need to discuss reducing asset purchases, effectively doubling down on the view that inflation is transitory, the U.S. dollar could fall quickly and aggressively. 
 
U.S. Economic Indicators.
U.S. Economic Indicators.
FOMC Preview: Taper Talk And Impact On U.S. Dollar
 

Related Articles

Dmitriy Gurkovskiy
Euro Recouped Its Losses By Dmitriy Gurkovskiy - Jul 12, 2021

The major currency pair is rather neutral early in the week but the Euro remains quite confident against the USD. Improved risk attitude made the “greenback” fall earlier and the...

Marios Krausse
Greenback Faces Eventful Week By Marios Krausse - Jul 12, 2021

The best performer last Friday was the British pound which headed for a test of 1.39 against the U.S. dollar. Much of the GBP/USD’s recent upward move can be attributed to a...

FOMC Preview: Taper Talk And Impact On U.S. Dollar

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Oc Masai
Oc Masai Jun 16, 2021 11:57
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Green back Thanks you
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email