FOMC interest rate decision set to spur market volatility
The Federal Open Market Committee interest rate decision is set to spur the next bout of volatility in financial markets this week, with the U.S central bank expected to cut interest by twenty-five basis points for a second consecutive month. Federal Reserve Chair Jerome Powell is not expected to pre-commit to further interest rate cuts after Wednesday’s meeting, as the American economy is still motoring-on despite the global slowdown.
Most U.S economic indicators have been holding steady, with job creation still remaining strong alongside inflation and retail spending. The U.S manufacturing sector has notably worsened since the last FOMC rate decision, although this is unlikely to be a key concern while other key economic metrics perform well.
Recent core consumer price index inflation data showed that inflation is increasing inside the United States economy, with consumer price pressures rising the most since July 2018. Core annual inflation grew by 2.4% in August, even outpacing the Federal Reserve’s annual inflation target.
Trade tensions have worsened since the last FOMC meeting, although both sides are working hard to find a resolution to the economic conflict between the United States and China. The FOMC is likely to remain in wait-and-see mode in regard to the Sino-U.S conflict, although the issue is likely to warrant some mention inside Wednesday FOMC policy statement.
The market reaction to Wednesday’s policy decision is likely to hinge around the policy language used inside the FOMC statement. A significantly more dovish policy statement should prompt U.S Dollar and equity selling, while more hawkish tones should see the greenback supported and equity markets holding onto recent gains.
EUR/USD Daily Candlestick Chart | Source: ActivTrader
The euro has been racing higher against the U.S Dollar following the overly dovish ECB policy meeting last Thursday, which may seem counter-intuitive, given that the ECB cut interest rates and introduced a fresh round of QE. Going forward, the 1.1160 and 1.1210 levels are key resistance before the 1.1300 level, while the 1.1050 and 1.1000 levels are now major technical support.
Written by Nathan Batchelor, External Analyst, ActivTrades
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