FOMC KICKS OFF TODAY, SEPTEMBER RATE DECISION ANNOUNCED AT 2PM TOMORROW

Today marks the start of the two-day meeting in Washington DC in which the Federal Reserve will decide upon the September interest rate decision at the bank. It doesn’t even really appear as though there are many decisions to be made here, as markets have carried an expectation for a 25 basis point rate hike for some time. What is perhaps up to greater debate, however, in December and whether or not the Fed can get in a fourth rate hike in 2018. But – there is time for that decision, and the big question as we go into tomorrow is how strongly the Fed may signal future interest rate hikes, how close we are to the neutral rate, and whether-or-not the bank is confident enough in the current economic backdrop to continue their pace of gradual tightening into 2019.

Tomorrow will bring a dot plot matrix as part of an updated set of projections and this, combined with what Mr. Jerome Powell says during the accompanying press conference, will likely be the key drivers around the US Dollar for tomorrow’s meeting.

The US Dollar continues to struggle as FOMC kicks off; and with just a few days left until the end of the quarter, it looks like this three-month-period will finish with a loss for the Greenback as we opened the quarter at 94.63. This comes after an aggressive rally in April and May, with bullish enthusiasm holding for the first-half of Q3. But, at the quarter’s mid-point on August 15th, the music suddenly stopped, bears took over – and have largely been in-control ever since.

US DOLLAR EIGHT-HOUR PRICE CHART: A TALE OF TWO TRENDS IN THE US DOLLAR, MUSIC STOPPED ON AUGUST 15TH

Chart prepared by James Stanley

At this stage, the big question is what the Fed might be able to do to change this tune if they even want to at all. As we’ve been following throughout Q3, the pushes in the US Dollar have appeared to emanate from the Euro and the EUR/USD pair, as the big breakdowns in April and May in the single currency mirror the bullish breakout in USD. This also syncs well with early-August price action, when the Euro was breaking down on fears of contagion from Turkey; and the US Dollar caught a solid topside run to set a fresh yearly high. And then as markets stepped back from the ledge, so did the US Dollar, and the currency has continued to fall for much of the period since.