When is the Fed interest rate decision and how could it affect DXY?

The Federal Reserve will announce its decision on monetary policy at 18:00 GMT. There won’t be a press conference. The minutes of the meeting will be released in three weeks (November 22) and the next meeting will be December 13 (will include new projections and press conference). 

Key notes

Market participants expect no change in rates today from the Federal Reserve and expect little modifications in the statement while a rate hike in December is expected by a majority. According to the CME Group Fed Watch Tool, the odds of a rate hike today are below 2% and rise above 95% for a hike in December. Economic data continue to support the normalization cycle in the US. In October the Fed started to reduce its balance sheet. 

On Thursday, US President Trump will announce the next Fed chief. Jerome Powell is likely to become the Chairman replacing Janet Yellen. If that is the case, after today, Yellen would lead only two more meetings (Dec 12-13 and Jan 30—31). 

No significant moves are expected from today’s events at the Fed. “The November FOMC policy meeting is unlikely to provide any new revelations. Chair Yellen and the Committee have very clearly highlighted an intention to continue gradually tightening policy, with the next move to come before year-end”, said analysts from Westpac. 

Analysts from Brown Brothers Harriman, expect the FOMC statement to be little changed and they point out that it will be the first meeting with Governor Quarles. The main debate appears to be what the Fed will do in December and also next year regarding rates. “We stick to our call for the next hike to be delayed to 2018. However, if incoming data are not weak enough to deter the Fed from its intention to hike in December, we will shift our call”, Rabobank analysts wrote. 

Going back into today’s meeting, at BAML, economist don't expect fireworks. “Since we will only receive the statement and not an updated Summary of Economic Projections or press conference, there are few opportunities for the FOMC to send a signal to the markets about the future direction of policy. Importantly, we do not expect the Fed to explicitly signal a hike in the upcoming meeting on December, as the market is already pricing in an over 80% probability of a hike”, they concluded.  

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Implications for DXY

With a December rate hike almost fully priced in and no relevant changes expected from the statement today, impact on prices could be limited. However, if the Fed makes minor surprises, it could have large impacts. 

The US dollar has been moving to the upside since late September. It reached a multi-year low back on September 8 and then rebounded. The move remains intact and today’s statement could reinforce the upside or could trigger a correction. 

The Dollar Index reached last week above 95.00 the highest level since mid-July. Then pulled back modestly and at the moment is moving sideways, between 94.30 and 94.75. A message from the Fed that points to a potential acceleration from the current path of the tightening cycle would strengthen the greenback and could lead to a test of 95.00 in the DXY. Above that level, resistances might be seen at 95.20 (June low) and 96.30 (July high). 

On the flip side, a message from the FOMC that looks dovish or downbeat on the economy would favor a correction in the DXY. The immediate support is seen at 94.30 (weekly low) followed by 93.90 and 93.50 (uptrend line and 20-day MA). A consolidation below 93.50 could signal that a potential short-term top at 95.04 is in place. 

About the interest rate decision 

With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, is the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency. A rate cut tends to weaken the local currency. If rates remain unchanged (or the decision is largely discounted), attention turns to the tone of the FOMC statement, and whether the tone is hawkish, or dovish over future developments of inflation.

About the FOMC statement 

Following the Fed's rate decision, the FOMC releases its statement regarding monetary policy. The statement may influence the volatility of USD and determine a short-term positive or negative trend. A hawkish view is considered as positive, or bullish for the USD, whereas a dovish view is considered as negative, or bearish.