Fed meeting: forget the slow crawl to tapering, it’s the dot plot that matters – Forex News Preview



The US Federal Reserve isn’t expected to announce any changes in policy when it concludes its two-day meeting on Wednesday at 18:00 GMT. However, the meeting is building up to be the Fed’s most important one of the year so far, with investors on the lookout for two separate sets of clues about the policy path. Will the Fed finally commit to a taper timeline this week, ending months of speculation, or will Chair Powell leave markets guessing again when he briefs reporters at 18:30 GMT? The US dollar is at risk of a pullback should investors not get the answers they are seeking, or expecting.

US economy on sound footing despite some wobbles

There have been a lot of worrying signs for the US economy lately. The unexpected resurgence in Covid infections due to the highly contagious Delta variant has knocked back both business and consumer sentiment over the summer, to the extent that jobs growth slowed substantially in August. In the meantime, there are some early indications that inflationary pressures may be cooling a bit. Both are strong grounds for the Fed to wait a little longer before reaching a decision on tapering.

However, although the economic data have been somewhat as unpredictable as the evolution of the virus path, there’s more than enough evidence to suggest that the American economy is far from being in trouble. The housing market is still booming, record job vacancies suggest the bumps in the jobs recovery are a supply problem not a demand one, and even consumers aren’t as gloomy as pointed out by some of the surveys, with retail spending growing solidly in August.

Tapering: almost there but not quite

So does this mean the Fed will announce a plan on Wednesday on how it will wind down its $120 billion monthly asset purchases? Probably not, but policymakers will very likely give strong hints that they’re getting very close to meeting their criterion to begin tapering and markets should expect a decision at the next meeting in November.

While this would mark a momentous point in the Fed’s own fight against the pandemic, the well-telegraphed move is unlikely to spark many fireworks in the markets. Investors will instead be focusing their attention on the updated economic projections, which of course include the famous dot plot chart.

Markets eyeing earlier rate hike

Back in June, FOMC participants had pencilled in the first post-pandemic rate hike for some time in 2023. But 2022 was a close call and it would only take three FOMC members to change their dots to bring forward the median prediction for a rate rise from 2023 to next year. Markets are already betting on an end of 2022 rate hike so such a signal would not lead to a huge repricing in fed fund futures.

Nevertheless, it would go a long way in confirming that tapering is definitely on the way whilst clarifying the Fed’s exit strategy from pandemic-era stimulus. The US dollar, which has been rebounding sharply from its early September lows, could stretch its gains if the Fed clearly flags taper action in November. Having just cracked above the 93.20 resistance, the dollar index could climb back towards its August peak of 93.73, before aiming for the 123.6% Fibonacci extension of the March-May downleg at 94.36.

A dovish Powell is dollar’s biggest risk

However, if the Fed does take a big step towards tapering but either the dot plot stays unchanged or the FOMC statement simply doesn’t deliver on the hawkish rhetoric, the dollar could come under selling pressure. The key support to the downside for the dollar index is the 50-day moving average just below 92.70, with the 61.8% Fibonacci of 91.95 being another critical level to watch.

Fresh jitters about the Chinese economy have added some uncertainty going into the meeting. But even if the fallout from the Evergrande crisis were to escalate, the Fed is already seen as being behind the inflation curve, so policymakers are unlikely to be able to delay tapering beyond the end of this year. A bigger risk for Wednesday is probably what Fed chief Jerome Powell says about inflation – whether he thinks it is levelling off, how worried he is about a slowdown in growth, and if he makes any remarks about the longer term outlook for US rates.

Disclaimer: le entità di XM Group forniscono servizi di sola esecuzione e accesso al nostro servizio di trading online, che permette all'individuo di visualizzare e/o utilizzare i contenuti disponibili sul sito o attraverso di esso; non ha il proposito di modificare o espandere le proprie funzioni, né le modifica o espande. L'accesso e l'utilizzo sono sempre soggetti a: (i) Termini e condizioni; (ii) Avvertenza sui rischi e (iii) Disclaimer completo. Tali contenuti sono perciò forniti a scopo puramente informativo. Nello specifico, ti preghiamo di considerare che i contenuti del nostro servizio di trading online non rappresentano un sollecito né un'offerta ad operare sui mercati finanziari. Il trading su qualsiasi mercato finanziario comporta un notevole livello di rischio per il tuo capitale.

Tutto il materiale pubblicato sul nostro servizio di trading online è unicamente a scopo educativo e informativo, e non contiene (e non dovrebbe essere considerato come contenente) consigli e raccomandazioni di carattere finanziario, di trading o fiscale, né informazioni riguardanti i nostri prezzi di trading, offerte o solleciti riguardanti transazioni che possano coinvolgere strumenti finanziari, oppure promozioni finanziarie da te non richieste.

Tutti i contenuti di terze parti, oltre ai contenuti offerti da XM, siano essi opinioni, news, ricerca, analisi, prezzi, altre informazioni o link a siti di terzi presenti su questo sito, sono forniti "così com'è", e vanno considerati come commenti generali sui mercati; per questo motivo, non possono essere visti come consigli di investimento. Dato che tutti i contenuti sono intesi come ricerche di investimento, devi considerare e accettare che non sono stati preparati né creati seguendo i requisiti normativi pensati per promuovere l'indipendenza delle ricerche di investimento; per questo motivo, questi contenuti devono essere considerati come comunicazioni di marketing in base alle leggi e normative vigenti. Assicurati di avere letto e compreso pienamente la nostra Notifica sulla ricerca di investimento non indipendente e la nostra Informativa sul rischio riguardante le informazioni sopra citate; tali documenti sono consultabili qui.

Facciamo ricorso ai cookies per offrirti la migliore esperienza possibile sul nostro sito. Leggi maggiori informazioni o modifica le tue impostazioni dei cookie.

Avvertenza sul rischio: Il tuo capitale è a rischio. I prodotti con leva finanziaria possono non essere adatti a tutti. Ti chiediamo cortesemente di considerare la nostra Informativa sul rischio.