The US Central Bank will make its final decision on interest rates this year on December 11. The decision itself will probably be less important than the press conference and macroeconomic projections of the Federal Open Market Committee. They can shed light on possible Fed actions next year and, as a consequence, affect the dollar.
The year 2019 brought three interest rate cuts in the United States. These were the first interest rate cuts since 2007. In October, the Federal Reserve lowered the target range for federal funds to 1.5-1.75 percent due to limited inflationary pressure and concerns about the economic outlook. At the same time, the central bank signaled a pause in the easing cycle. The interest rate market estimates that interest rates will no change today.
Due to the fact that today will be the Fed's decision, and tomorrow the first decision of the European Central Bank under Christine Lagarde, investors on the currency options market expect larger fluctuations in the EUR/USD exchange rate. Implied one-day volatility increased to 11.23 percent. This means that the expected potential range of fluctuations in the EUR/USD exchange rate may be around 56 pips. Expected volatility is to be raised not so much because of the interest rate alone, but because of uncertainty about future actions.
Given the recent overbought levels on the dollar index futures market and the possibility of further interest rate cuts by the Fed next year, it seems that the US currency may still be under pressure. We have already seen potential U-turns on several currency pairs with the dollar. It is possible that 2019 could bring an end to the strength of the dollar, and 2020 may bring its weakening.
The Fed decision will be published today at 20.00. At the same time, macroeconomic projections will be also published. The press conference of Fed Chairman Jerome Powell will be held at 20:30.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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