Markets and economists forecast that the FOMC will leave the Fed funds target range unchanged at 5.25%-5.50% for a fourth consecutive meeting. Therefore, the policy meeting, scheduled for today at 7:00 pm GMT, will focus on the accompanying Rate Statement, Fed Chair Jerome Powell, and whether we see a pushback against March rate pricing.

133bps of cuts priced in

December’s policy meeting delivered a dovish shift in its economic projections. The SEP revealed that FOMC market participants project three rate cuts this year, or 75bps, up from 50bps previously forecasted. There remains a disconnect between the Fed and the market. Futures and OIS are pricing around 133bps of cuts this year, with March at around a 40% chance of a cut. The first 25bp cut remains fully priced in for May’s policy meeting (31bps).

Chart

Bloomberg Futures Pricing

US CPI inflation data was widely talked about as we ventured into mid-month trading. Year-on-year headline inflation for December reached 3.4%, 0.3 percentage points higher than November’s 3.1% reading, while core inflation, or underlying inflation which strips out energy and food prices, cooled to 3.9% for the same period, down from 4.0% in November. More recently, though, the Core PCE Price Index, which is the Fed’s preferred measure of inflation, inched closer to 2.0% after reporting 2.9% on a year-over-year basis for the month of December; however, it is worth highlighting that quarterly Core PCE has actually been at 2.0% for two consecutive quarters.

So, with inflation clearly heading in the right direction, economic activity still resilient, and the labour market tight, there is still a chance that this FOMC meeting will offer little this evening, which could see a dovish reaction.

Despite this, with a no-change all but signed and sealed today, investors will still be closely scrutinising the Rate Statement and comments from Fed Chair Powell’s presser held thirty minutes later for any hint of policy easing (no new projections for this meeting). A possible tweak in language could be a change to the statement to highlight willingness to cut rates rather than policy firming. It is unlikely that they will remove the sentence: ‘In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time’. But if they did, this would indicate a clear shift from hikes to cuts and likely underpin a bid in stocks and bonds and weigh on the buck.

March’s meeting continues to lean in favour of a hold, but in light of the resilient economic activity (Q4 2023 real GDP came in at an annualised rate of 3.3%, surprising markets) and inflation continuing to slow, it will be interesting to see if Powell says more on this. Nevertheless, we’re likely to see the chief largely stick to the script here: data-dependent and emphasise a somewhat neutral bias. If this is the case and this evening’s event offers little news, this Friday’s jobs data and CPI inflation number released mid-way through February will be crucial to watch as we head into March’s meeting.

Dollar Index indecisive ahead of FOMC decision

The Dollar Index has been monotonous in recent trading. Price has remained pretty much indecisive since 17 January after touching gloves with resistance on the daily chart at 103.62. Complemented by the 200-day simple moving average (SMA) at 103.53, this has proven a stubborn obstacle for bulls to dethrone. Ultimately, the above-noted resistances will be in focus, and a breakout beyond these levels could ignite interest in another layer of daily resistance from 104.15.

Support to have pencilled in ahead of the FOMC release falls in at 102.92, which happens to share space with the 50-day SMA at 102.82. Any breakout south of here throws light on lows around 102.09 and neighbouring daily support from 101.77.

Chart

This material on this website is intended for illustrative purposes and general information only. It does not constitute financial advice nor does it take into account your investment objectives, financial situation or particular needs. Commission, interest, platform fees, dividends, variation margin and other fees and charges may apply to financial products or services available from FP Markets. The information in this website has been prepared without taking into account your personal objectives, financial situation or needs. You should consider the information in light of your objectives, financial situation and needs before making any decision about whether to acquire or dispose of any financial product. Contracts for Difference (CFDs) are derivatives and can be risky; losses can exceed your initial payment and you must be able to meet all margin calls as soon as they are made. When trading CFDs you do not own or have any rights to the CFDs underlying assets.

FP Markets recommends that you seek independent advice from an appropriately qualified person before deciding to invest in or dispose of a derivative. A Product Disclosure Statement for each of the financial products is available from FP Markets can be obtained either from this website or on request from our offices and should be considered before entering into transactions with us. First Prudential Markets Pty Ltd (ABN 16 112 600 281, AFS Licence No. 286354).

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD trades sideways below 1.0900 amid cautious optimism

EUR/USD trades sideways below 1.0900 amid cautious optimism

EUR/USD trades sideways below 1.0900 in the early European session on Tuesday. The US Dollar looks to stabilize amid cautious optimism, as uncertainty over the US presidential election outcome lingers. US ISM Services PMI is also in focus, as Americans head to the polls. 

EUR/USD News
GBP/USD rises toward 1.3000, awaits US election result

GBP/USD rises toward 1.3000, awaits US election result

GBP/USD is rising toward 1.3000 in European trading on Tuesday, having found support near 1.2950 on a broadly subdued US Dollar. Traders eagerly await the outcome of the US presidential election, refraining from placing fresh bets on the major. 

GBP/USD News
Gold price holds steady around $2,735 area amid modest USD slide, US election jitters

Gold price holds steady around $2,735 area amid modest USD slide, US election jitters

Gold price attracts dip-buyers after touching a one-week low on Tuesday and draws support from a combination of factors. Fed rate cut bets, declining US bond yields and subdued USD demand continue to act as a tailwind for the precious metal. 

Gold News
Crypto markets brace for volatility in tight race between Trump and Harris

Crypto markets brace for volatility in tight race between Trump and Harris

The US presidential election is one of the most significant events in the world. Due to the influence of the country’s political decisions, policies, and economic approaches, it can significantly impact crypto and global markets. 

Read more
US presidential election outcome: What could it mean for the US Dollar?

US presidential election outcome: What could it mean for the US Dollar? Premium

The US Dollar has regained lost momentum against its six major rivals at the beginning of the final quarter of 2024, as tensions mount ahead of the highly anticipated United States Presidential election due on November 5.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Majors

Cryptocurrencies

Signatures