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Dollar Spikes Above 113 Versus Yen Ahead Of FOMC Decision, Kiwi Awaits RBNZ Rate Announcement Too

Here are the latest developments in global markets:

FOREX: Major currencies were trading in narrow ranges as traders were waiting for the FOMC policymakers to conclude their two-day policy meeting later on Wednesday with another rate hike on the cards. But more importantly they are interested to learn what are the central bank’s new economic forecasts and whether the monetary committee continues to see three rate rises for next year amid escalated trade tensions and a strongly growing US economy. Dollar/yen managed to touch 113.02, posting a fresh 2 ½-month high before slipping back to 112.86 (-0.09%), while the dollar index was stable around 94.13 for the third consecutive day. In the Eurozone, the Italian Finance Minister, Giovanni Tria, said that the 2019 budget will contain a universal income for citizens as demanded by the right-wing Five-star movement ruling party and a lower retirement age. Note that the party threatened to not vote on the budget unless the two mentioned requests were included. Tria also said that the government will unveil the first draft of fiscal plans on Thursday. Meanwhile the ECB chief economist admitted that risks to growth are mounting in the block, though there is no hard data evidence yet. Euro/dollar was marginally down at 1.1766 (-0.05%). Pound/dollar declined to 1.3160 (-0.16%) before a speech by UK Prime Ministe later today. In the antipodean sphere, aussie/dollar and kiwi/dollar were marginally up at 0.7254 (+0.06%) and 0.6653 (+0.11%) respectively. Dollar/loonie was flat at 1.2953.

STOCKS: European stocks were mixed on Wednesday at 1015 GMT ahead of the widely expected Fed rate hike later today. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 inched down by 0.02% and 0.13% respectively. The German DAX 30 fell by 0.16%, the French CAC 40 rose by 0.25%, while the Italian FTSE MIB was weaker by 0.09%. The British FTSE 100 edged up by 0.05%. In Asia, equities closed mixed with South Korean and Chinese indices posting strong gains. In the US futures tracking S&P 500, Nasdaq 100, and Dow Jones were in the green, pointing to a positive open.

COMMODITIES: Oil prices were on the back foot early in the European session though modestly so as fears over US sanctions on Iranian oil exports and their impact on crude supply continued to provide support to the market. Yesterday the API weekly report indicated a larger increase in US crude stocks in the week ending September 21, while the US President speaking at the UN called once again for more oil and lower prices. WTI crude and Brent were last seen at $72.12/barrel (-0.22%) and $81.63 respectively (-0.29%). In precious metals, gold hovered around $1,198/ounce (-0.21%), maintaining within its $1,189 – $1,214 one-month range.

Day Ahead: All eyes on FOMC and RBNZ interest rate decisions

Traders are expected to have a relatively busy day at the office on Wednesday as central bank events will be in the spotlight, with the Federal Reserve and the Reserve Bank of New Zealand making announcements on interest rates and publishing their economic projections.

The two-day Fed policy meeting concludes today with investors projecting the central bank to raise rates by another quarter-percentage point. However, the focus would not be on the rate announcement which is fully priced in by the markets, but on the monetary policy statement following the rate decision at 1800 GMT as well as on Fed chair Jerome Powell press conference at 1830 GMT.

Investors will be paying close attention to the central bank’s latest economic projections and will be eager to hear any updates on the path of rate increases in the coming years and any comments around the global trade dispute and outlook for growth. If the Fed Chair Jerome Powell suggests that it is time to slow down, the greenback could drive quickly lower as it would cast doubt about future rate hikes. On the other hand, if he is unambiguously hawkish the dollar would soar against all major currencies.

Earlier in the day, new home sales for August will be released out of the US. Sales are forecasted to tick higher by 0.5% compared with -1.7% in the preceding month. In oil markets, the EIA weekly report due at 1430 GMT is expected to indicate a smaller decrease in US crude oil stocks for the week ending September 21 relative to the preceding week – the decrease is estimated at 1.279 million barrels versus the previous week’s decline of 2.057mn barrels.

Next in focus would be the Reserve of Bank of New Zealand (RBNZ) rate announcement at 2100 GMT. The central bank is predicted to hold rates unchanged at 1.75% and the meeting will be accompanied by a press conference by Governor Adrian Orr, and thus the focus will be on the statement for any updates. Last week’s GDP figures have helped to relieve concerns that the economy is heading into a slump. However, despite the pickup in growth, the RBNZ remains concerned about persistently weak business confidence.

As for public appearances, ECB chief Mario Draghi will be meeting German President Steinmeier at 1200 GMT at the ECB headquarters in Frankfurt where they are expected to make short statements. Also, US President Donald Trump will be chairing a UN Security Council meeting on Iran during the annual gathering of world leaders at the United Nations. Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump will hold a summit meeting as well, with trade being high ranked in the agenda.

Brexit could make headlines as well as the British Prime Minister is scheduled to speak at the Bloomberg Global Business Forum in New York about her plans to build Britain’s business profile after the country’s exit from the EU.

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