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The Federal Reserve will announce its decision at 18:00 GMT. Jerome Powell will hold a press conference at 18:30 GMT. The central bank will also present the summary of economic projections.
Key notes
The Federal Reserve is generally expected to maintain interest rates in the range of 2.25% to 2.5%. At the last meeting, the Fed took a dovish turn indicating more "patient" in the future. Futures federal funds show no expectation of a rate hike over the course of the year and probabilities of a rate cut as a result of the latest US economic data that has been mitigated . Manufacturing activity has eased and employment growth has declined. In addition, the global outlook continues to signal a slowdown and the trade deal between China and China is still not there. On the positive side, consumer spending remains firm.
The weak inflationary pressures are a strong argument for the Fed to maintain its relatively new approach. James Knightley, senior economist at ING, sees the Fed sticking to its "patient" approach and warns of some potential announcements about the balance sheet, as "quantitative tightening" is about to end. At ING, they continue to look for a 25 basis point rise in the interest rate in the second half, given the return of growth and the easing of trade tensions.
What the central bank says about the balance sheet will be a relevant question. The Fed's portfolio is over $ 4 trillion. The central bank could announce today or soon its intention to end the balance sheet reduction program. The Fed will present the updated statement and forecasts which should be trended downward given the economic data released since the December meeting (latest report). "We expect the Fed to lower its "point" signal to a rate hike in 2019 (instead of two). We expect that they will also be downgraded for 2020 and 2021 and we would not be surprised if the Fed reports "just one shot and done". That said, the Fed has begun to downplay the importance of the points, so we'll be careful not to give them too much weight. Our current baseline scenario consists of two rate hikes (in June and December) based on our generally positive economic outlook. However, if the Fed continues to focus on inflation expectations, an increase in June seems less likely as market-based inflation expectations are well below historical expectations. average", Said badysts Danske Bank.
Implications for DXY
On March 7, the DXY peaked several months following the meeting of the European Central Bank, but failed to hold around 97.50 and went back down. SSince then, he has constantly fallen and reached his floor yesterday at 96:30. The decline occurred against a backdrop of lower US yields, affected by the Fed's shift in position and US data.
The US dollar could be hit by a more dovish tone than expected from the Fed and Powell today, as well as by a major shift in the "dot chart", for example, which announces no hike rate in the coming quarters. On the contrary, if the Fed is perceived as less accommodating, for example, if it is considering one or two rate hikes in the course of the year or mentions that the normalization of the balance sheet could last longer than expected, the greenback could to reinforce.
If the DXY bounces, the critical level to monitor is the 96.60-96.80 resistance zone. A higher break would reinforce the bullish scenario, by placing the index in an upward channel. On the contrary, a break below 96.30 would pave the way for a 96.00 test and confirm the breakout of bullish formation, revealing lows in 2019.
About the interest rate decision
With a pre-established regularity, the central bank of a country holds an economic policy meeting during which board members take various measures, the most relevant being the interest rate applied to loans and advances to banks commercial. In the United States, the board of governors of the Federal Reserve meets every five to eight weeks to make its latest decisions. A rate hike tends to strengthen the local currency. A reduction in rates tends to weaken the local currency. If rates remain unchanged (or if the decision is widely discounted), the focus is on the tone of the FOMC statement and on whether it is hawkish or accommodating on the issue. future evolution of inflation.
About the FOMC statement
Following the Fed's rate decision, the FOMC releases its statement on monetary policy. The statement can affect the volatility of the dollar and determine a positive or negative trend in the short term. A hawkish point of view is considered positive or bullish for the dollar, while a dovish point of view is considered negative or bearish.
About the FOMC's economic projections
This report, published by the US Federal Reserve, includes the FOMC's forecast of inflation and economic growth for the next two years and, more importantly, a breakdown of the interest rate projections of each FOMC member.
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