FOMC, As Pound Stays Steady and the Dollar Volatile
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FOMC, As Pound Stays Steady and the Dollar Volatile

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Azeez Mustapha

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The dollar and the euro are trading in a range as attention shifts to the FOMC meeting, which is unlikely to offer anything unexpected at this point. Today’s markets are still risk-averse, but selling has slowed slightly. On risk-off sentiment, commodity currencies remain the worst, as the Australian dollar ignores higher-than-expected inflation data. The yen and the Swiss franc are both strong currencies, but the Sterling has surpassed them. The Pound is bolstered by the IMF’s increase of the UK’s projection. 

Under the GBP/USD, the resistance level of 1.3908 remains in focus. There will be a decisive break there, indicating that the collapse from 1.4248 is complete. For a retest of this high, the intraday bias will be turned back to the upside. On the downside, a break of minor support at 1.3766 will shift the bias to the downside for 1.3570. If the resistance turned support at 1.4248 is broken, the decline from 1.4248 to 1.3482 will resume.

On Wednesday, the greenback regained some buying interest and managed to reverse recent declines, boosting the US Dollar Index (DXY) back over 92.50. Following the morning bell in the old continent, the index begins a recovery to the 92.50/60 area after two straight daily pullbacks, including Tuesday’s multi-day lows at 92.30. The recovery in yields on the major US 10-year note to levels above 1.25 percent appears to be driving the dollar higher, all within the multi-session consolidative theme. In the meanwhile, in light of the next FOMC meeting, market players and the dollar are expected to adopt a cautious approach.

Attention Shifts Towards FOMC

Due to earnings season, the risk-on mood appears to have flooded the markets, and investors have begun to hunt for indications on the Fed’s monetary policy stance at this week’s meeting. US stock markets got off to a strong start this week, with US indices closing at record highs yesterday. Traders are focusing on the earnings season, with a special focus on big cap tech companies, and markets have temporarily brushed aside any concerns about the US economic recovery.

As markets approach closer to the crucial FOMC session, the dollar is projected to enter a consolidation period in the short term (Wednesday). Meanwhile, bouts of risk aversion in response to coronavirus fears, the steady speed of the economy, strong inflation, and the potential of earlier-than-expected QE tapering/rate rises all support the dollar’s further rise.

The Federal Reserve is expected to keep its policy intact and give signals as to when it might start decreasing its bond-buying program. Rising prices and a strengthening labor market give a reason for optimism, but hints of a downturn and the spread of the Delta virus are cause for concern.

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