Fed meeting: Will asset purchases end early? – Forex News Preview



The main event this week will be the Fed’s policy decision at 19:00 GMT Wednesday. No action is expected, but with the markets pricing in four rate increases for this year, the central bank is likely to signal that normalization is imminent. There is also some speculation that asset purchases could come to an immediate end. That will likely decide the reaction in the dollar. 

Economic boom

The US economic recovery has been very impressive. The economy is already much larger than it was before the crisis, the labor market is tight by several metrics, consumption is strong, and inflation is running at the fastest pace in four decades. 

Wages have also started to fire up as companies compete to attract workers. That’s crucial for the Fed because it implies that inflationary pressures might not cool by themselves once supply chains normalize and energy prices stabilize. 

As a result, market participants are betting the Fed will step on the brakes, currently pricing in four rate increases for this year. Beyond rate hikes, another crucial variable for traders is when and how aggressively the Fed will begin shrinking its balance sheet. 

Meeting playbook

Turning to this week’s meeting, no action is anticipated. Instead, the central bank is merely expected to signal that rate hikes are on the menu soon, essentially preparing the ground for liftoff in March. 

The twist is that some strategists are calling for asset purchases to come to an immediate halt. At its previous meeting the Fed said it would stop them in March, but with the US economy being so strong and inflation roaring, many argue there’s no real benefit in continuing to buy Treasuries and mortgage-backed securities. 

While that is true, the Fed also doesn’t want to shock financial markets. Even though equity markets have declined substantially and Treasury yields have soared in the past few weeks as traders priced in much of what the Fed will do this year, there hasn’t been any sense of panic selling. 

The Fed wants to keep it that way. Ending asset purchases one month early would only stoke panic, without delivering any meaningful benefits in fighting inflation. Such a move wouldn’t make much sense from a risk management perspective. 

Therefore, if the Fed sticks to its current plan to end asset purchases in March, the initial reaction in the dollar may be slightly negative as those looking for an early stop are left disappointed. 

Looking at dollar/yen from a technical perspective, the pair could encounter immediate support near the 113.45 level, a violation of which would turn the focus towards 112.70. 

On the upside, the first target for the bulls may be the 115.00 region. 

Dollar still attractive overall

In the bigger picture, the outlook for the dollar remains favorable over the next few months. The US economy is booming and although the markets have already priced in much of what the Fed will do this year, the pricing for next year still has some room to grow. 

Money markets are currently pricing in less than three hikes for next year, which may turn out to be too conservative. Hence, Treasury yields can still move higher, widening the dollar’s interest rate advantage. 

Likewise, the dollar tends to perform well during periods of market stress thanks to its status as the reserve currency, which may come in handy if the rest of the year is as volatile as January has been. 

The main risk to this view would be any signs of ‘peak inflation’ in the coming months. If investors sense that the wild days of inflation are behind us already, they could dial back bets for aggressive Fed tightening. However, that’s probably a story for March or even later. 

Finally, note that beyond the Fed meeting, there’s also a barrage of US data releases this week, including the first estimate of GDP for the last quarter on Thursday. 

免責聲明: XM Group提供線上交易平台的登入和執行服務,允許個人查看和/或使用網站所提供的內容,但不進行任何更改或擴展其服務和訪問權限,並受以下條款與條例約束:(i)條款與條例;(ii)風險提示;(iii)完全免責聲明。網站內部所提供的所有資訊,僅限於一般資訊用途。請注意,我們所有的線上交易平台內容並不構成,也不被視為進入金融市場交易的邀約或邀請 。金融市場交易會對您的投資帶來重大風險。

所有缐上交易平台所發佈的資料,僅適用於教育/資訊類用途,不包含也不應被視爲適用於金融、投資稅或交易相關諮詢和建議,或是交易價格紀錄,或是任何金融商品或非應邀途徑的金融相關優惠的交易邀約或邀請。

本網站的所有XM和第三方所提供的内容,包括意見、新聞、研究、分析、價格其他資訊和第三方網站鏈接,皆爲‘按原狀’,並作爲一般市場評論所提供,而非投資建議。請理解和接受,所有被歸類為投資研究範圍的相關内容,並非爲了促進投資研究獨立性,而根據法律要求所編寫,而是被視爲符合營銷傳播相關法律與法規所編寫的内容。請確保您已詳讀並完全理解我們的非獨立投資研究提示和風險提示資訊,相關詳情請點擊 這裡查看。

我們運用 cookies 提供您最佳之網頁使用經驗。更改您的cookie 設定跟詳情。

風險提示:您的資金存在風險。槓桿商品並不適合所有客戶。請詳細閱讀我們的風險聲明