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By xemarketanalysis December 18, 2018 10:38 am
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    Xe Market Analysis: The Currency Market Holds its Breath Ahead of a Key FOMC Meeting

    OVERVIEW

    • The US Dollar index waits for the US Fed decision on interest rates, with the Greenback down 0.2% vis-à-vis G-10 currencies
    • The GBP is ignoring Brexit chaos and is focused on the upcoming Bank of England interest rate decision
    • The price of a barrel of NYMEX WTI Crude crashes to $48.90, its lowest level since October 2017, down 19.23% year to date.

    HIGHLIGHT

    Investors are nervously waiting for the FOMC members decision due tomorrow. There is growing speculation that the Fed will deliver a dovish interest rate hike of 25 basis points with a future rate path point to three further increases in 2019. The Greenback has appreciated nearly 5% against the G-10 currencies this year, and the Dollar index is at an 18-month high.  We expect the currency market to sift through the details of the economic projections and the press conference to gauge on next monetary policy moves.

    US Dollar Index

    US DOLLAR

    The Greenback is trading with a negative bias this morning as the US Fed kick-starts its two-day meeting. Investors are expecting a dovish hike of 25 basis points from the FOMC members and will be eagerly waiting for the Fed's Economic Projections report. WTI Crude oil is sliding lower for the third consecutive session over concerns of increasing supplies, doubts over the effectiveness of recent output cut by OPEC and a looming global economic slowdown.  Commodity currencies are at risks. The economic calendar is relatively thin today and trading is expected to err on the side of caution. 

    BRITISH POUND

    GBP/USD was unable to keep its momentum going today after it clocked a six-day high in early trading. The market is displaying an unusual calmness despite speculation of a second Brexit referendum looming and EU rejecting calls for improving the current Withdrawal deal. The pair seems to be preparing itself for a “buy the rumour and sell the fact” scenario. CPI data is due tomorrow while the Bank of England is expected to deliver a no-change decision on Thursday.

    EURO

    EUR/USD hit a seven-day high earlier and is now oscillating around the 1.14 level as market braces for a measured statement from the FOMC. There is growing uncertainty about future plans for 2019 with three further increases in the charts. Meanwhile, business sentiment in Germany continues to slide. The Ifo measure of corporate confidence fell from 102.0 to 101.0 this month. This is the fourth consecutive decline with trade tensions and risk of no-deal Brexit as the main reasons for uncertainty.

    CANADIAN DOLLAR

    USD/CAD is consolidating around the 1.34 handle in the absence of any significant data releases. Canadian manufacturing sales shrunk 0.1% in October after four increases in the previous five months. The market prefers to adopt a "Wait and See" approach ahead of the Fed meeting and inflation data due tomorrow. Meanwhile, we expect sliding oil prices to have a bearish weight on the Loonie. NYMEX WTI is trading at its lowest level since Oct 2017 and fell to $47.87 a barrel.

    AUSTRALIAN DOLLAR

    AUD/USD slipped below the 0.72 level but is still in positive territory as the market waits for the Fed. The Mid-Year Economic and Fiscal Outlook report was bullish pointing to a strong economy with unemployment falling to its lowest level in six years. The report also reveals that the economy is expected to “perform well” with GDP expected to strengthen to 3% in 2019-2020. 

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