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The Dollar in Focus, with Plenty Hanging on the FOMC Statement

By:
Bob Mason
Published: Jul 26, 2017, 07:01 UTC

The Dollar’s on the rise going into the European session, with the markets now focused in on this afternoon’s FOMC interest rate decision and more

Central Bank Anticipation Grows

The Dollar’s on the rise going into the European session, with the markets now focused in on this afternoon’s FOMC interest rate decision and more importantly, the FOMC statement.

Longer dated treasury yields were on the rise on Tuesday, providing the Dollar with support, as the markets begin to price in a possible firm commitment by the FED to begin selling down the balance sheet, after months of FOMC member commentary on the timing.

We have heard from both the doves and the hawks and both sides of the fence are certainly more aligned with regards to needing to begin selling down the balance sheet than a final rate hike by the FED before the year is out.

Monday’s IMF downgrade of U.S growth projections for this year and next are unlikely to have a material impact on today’s decision, with economic indicators out of the U.S having continued to send mixed signals through the 2nd quarter, Monday’s better than expected private sector PMI figures and Tuesday’s July consumer confidence numbers a positive for the U.S economy going into the 3rd quarter, the timing appropriate ahead of today’s decision.

At the time of the report, the Dollar Spot Index was up 0.16% at 94.205, with this afternoon’s June new home sales figures unlikely to have a material impact on the Dollar in the run up to the release of the FOMC statement, which will dictate the fate of the Dollar through to Friday’s 1st quarter, 1st estimate GDP numbers.

Scheduled meetings through the afternoon between members of the U.S administration and investigators could complicate matters, though we expect the meetings to have limited influence for now, the key investigation being into the U.S President’s dealings prior to taking office.

While the FOCM statement release will be the key event of the day, the markets will have some distraction through the early part of the day, with 1st quarter, 1st estimate GDP figures scheduled for release out of the UK.

Monday’s IMF downgrade of the UK’s growth projections for this year and next seem justified following a string of weak stats out of the UK, which has raised questions over whether the BoE will be willing to make its move next month, in spite of the hawkish commentary from MPC member Haldane and BoE Governor Carney, suggesting that any disappointing figures this morning will weigh heavily on the pound.

The pound was down just 0.08% at $1.3015 at the time of the report, with direction hinged on the GDP figures, forecasting 0.3% growth for the 2nd quarter. We will expect the BBA Mortgage Approvals to be brushed aside by the markets, with the release of the data coinciding with the GDP number roll out.

With no material stats out of the Eurozone, there’s little else for the markets to focus on through the day, with appetite for the Dollar weighing on the EUR, which was down 0.12% at $1.1633 at the time of the report.

There’s plenty hanging on today’s FOMC, which could see the Dollar give up early gains, with anxiety over what’s to come later today likely to weigh.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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