More weakness from the US Dollar, more gains for the rest of the global currencies against the US coin. This has been the theme in the money markets for the past few days and yesterday was no difference, especially ahead of today’s important event. We have explained in our reports recently that the reason behind this decline in the US Dollar has been the discouraging reports from the US economy and investors’ fears that it could drive the Fed to delay raising their key interest rate.
Finally the time has come for us to find out whether the Fed will appear more bearish on the back of the slowdown in progress or remain firm on their previous rhetoric. Today’s FOMC meeting will not be followed by a press conference so we will have to dig in the statement that will be released to get a feeling for what was discussed. The important factor here is to be able to understand whether the Fed will appear increasingly concerned over any retreat or slowdown in the key metrics of the economy.
So if the committee appears to have increased concerns over the recent slowdown in the inflationary pressures, the growth of the domestic workforce or the performance of the manufacturing and/or services sector this will be reflected on their statement. Such a development would be translated as a turn away from a June tightening and will drive the Dollar even lower.
On the other hand, a statement containing little to no changes in rhetoric would still leave June as an option on the table and should allow the Dollar to reverse its recent decline and claw back some of its losses from the likes of the Euro and the Pound.
Ahead of this important Fed meeting and its possible consequences the rest of the currencies extended their gains against the Greenback. The Euro almost hit 1.1000 over the past 24 hours also lifted by the changes in the Greek negotiation team. The Cable was also on the rise and is trading around the 1.5350 area this morning, disregarding the decline in the Gross Domestic Product report.
Should the Fed appear more dovish in their statement tonight both the Euro and the Cable will have the opportunity to move even more to the upside. The Euro will be looking towards the 1.1200 area as the next stop while the Cable could be looking towards 1.5500 if it receives further lift from Dollar’s decline.
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