The economic calendar is rather busy today. French GDP, Swiss KOF, Eurozone confidence indicators, Germany CPI and US ADP employment will also be watched. But the major focus will be on FOMC rate decision and press conference.
Fed is widely expected to keep federal funds rate unchanged at 2.25-2.50%. Since December, following extreme market volatility and cautious turn in Fedspeaks, pricing of Fed’s rate path changed drastically. Fed funds futures are now only pricing in around 20% chance of a 25bps hike by the December meeting. Dollar then started weakening broadly. The greenback suffered another round selloff last week after a WSJ report suggesting that the Fed members are considering to end the balance sheet reduction plan earlier than previously expected.
The first focus today will be on forward guidance in the statement. Back in December, FOMC noted that “the Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.”
But since then, Fed officials sung a chorus, saying that Fed can afford some patience before another rate move. And Fed chair Jerome Powell even indicated that Fed is flexible to move in either direction if necessary. Any change in the forward guidance that hints at a pause could give Dollar more pressure.
And secondly, Powell will need to indicate if there is any change in Fed’s balance sheet reduction plan.
Here are some previews on FOMC:
