Little time remains before today’s FOMC meeting, which will decide the future target interest rate for the U.S. banks. Dollar gained a some weight against euro on some marginal expectations that Federal Reserve will cut rates by just 25 basis points instead of 50 points predicted by the current futures rate.
Financial markets expect not only the interest rate decision, but also the FOMC’s statement on the discount rate for banks — the rate at which banks borrow funds from Fed. If the both rates will be lowered by 0.50% stock markets will accept this signal as a positive, while Forex rates most probably already include the reaction to such decision.
In case if FOMC will announce just a 0.25% interest rate cut or even no rate cut at all, there might be some volatile movements on all financial markets. But this situation is very hard to believe in — Fed doesn’t want to make any surprises for a
So, the main trading idea remains in the discount rate cut and the sentiments which will accompany the rates decision. In fact, dollar has almost nothing to lose: in case of 0.50% cut — dollar will benefit from stronger economy, in case of 0.25% cut — dollar gains on higher rate and surprise positive news.
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