US Open Note – Stocks’ positive tone pauses but commodities keep minor upbeat vibe

Market jitters evident prior to Fed decision; dollar stabilizes

While the suspension of the debt ceiling may hit a snag in the US Senate and somewhat cause disorder in global financial markets at a time of uncertainty, investors’ eyes have turned to the FOMC meeting decision scheduled today at 18:00 GMT, for laying the groundwork regarding the taper timeline and a possible hawkish comment. Asian session gains in US stock futures have steadied ahead of the Fed, while the greenback’s potency in the forex arena remains fairly muted. The US economy remains robust and progress in wages and rising inflation are nudging the tapering signal closer, but the question is, will the Fed load the gun today?

The dollar index is holding slightly above the 93.00 mark and appears to be underpinned by the risk-off environment and encouraging news for the US. No change in the Fed’s policy is likely to come about later in the evening but heightened expectations of a fairly hawkish hold out of the meeting is anticipated to state what will happen by November or the end of the year. Should today’s FOMC meeting clearly touch on the taper timeline narrative, the greenback could get a booster jab. Additional wind in the dollar’s sail could arise especially if tapering begins at the end of 2021 or the beginning of 2022 with expectations of an early 2023 interest rate hike.

Attention will also fall on the dot plot, which if it results in a more hawkish tone as more FOMC members change their lift-off expectations of a rate hike coming in 2022 rather than June’s estimation of being in early 2023, it could bolster upside projections for the dollar. Furthermore, the outlook for 2024 will be added to the plots today.

The euro held around the $1.1730 mark, while the pound struggled around $1.3635. The pound could remain weak as the BOE is expected to convey a dovish hold on Thursday as the UK’s economy is somewhat lagging lately. The expiration of the jobs furlough program this month may be adding to this guarded vibe.

BOJ remains a dove

The Bank of Japan revealed a dovish hold early in Asian sessions keeping its policy rate at 0.10%, which resulted in the yen propelling towards the 109.60 vicinity while the dollar remained largely unchanged.

US crude output under microscope, gold shines, antipodeans and loonie lag

Oil is still feeling the effects of Hurricane Ida, as the damage to two large Gulf of Mexico fields, which will regain functionality next year, has assisted oil’s price rise, as has the pressure on natural gas. Oil inventories are expected to have declined by 3.3Mln barrels in the previous week due to disruptions in production. WTI futures ahead of today’s FOMC have floated to the $71.70 per barrel mark. On that note, and after Justin Trudeau secured himself a third term as Canada’s prime minister, the Canadian dollar continued to underperform, despite rising oil prices, as the greenback remained supported ahead of the FOMC meeting.

Gold seems to be benefiting as a safe haven, slightly from the Evergrande story as well as the drop in the US 10-year yield to 1.28%, plus a muted dollar. Volatility in the antipodean currencies was also absent, with the aussie and kiwi holding around 0.7245 and 0.7010 respectively.

At 14:30 GMT US crude oil inventories are due, while at 18:00 GMT, the FOMC decision is due followed by Fed Chair Powell’s press conference, which is scheduled for 18:30 GMT.

Then at 23:00 GMT Australia’s Flash Manufacturing and Services PMI’s are expected.

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