Markets Await the FOMC and Look for Clues Around First Rate Cut

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Markets are calm ahead of the FOMC decision later this evening where it is widely anticipated there will be little new information to digest. Powell’s press conference may provide more detail but the data-dependent Fed is likely to simply extend its cautious approach.

(AI Video Summary)

The market update talks about an important meeting called the FOMC, where a group of people will discuss and make decisions about the economy. People are really excited to hear what Jerome Powell and the rest of the committee have to say. Although there probably won’t be any immediate changes to the interest rate, people are curious if there might be a rate cut in March or a delay until May.

The Federal Reserve, or Fed for short, usually takes a cautious approach when making decisions about the economy. Right now, the US economy is doing well and the International Monetary Fund (IMF) has even raised its forecast for global economic growth in 2024, pointing to the US as one of the strong performers. The Fed wants to avoid making rate cuts if the economy is already strong, especially if there are any issues in the Red Sea region or if prices are rising. So, the committee will use February to gather more information and lay the groundwork for a possible rate cut.

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It’s important to know that the members of the Fed who get to vote on these decisions this year lean more towards wanting to keep the interest rates high. This suggests that the first rate cut might happen in May.

The video also mentions something called the dollar basket, which is a way to measure the value of the US dollar compared to other currencies. Right now, the dollar basket is not giving us any clear signals about which direction it’s headed in. So even though there is some negative economic news coming from Europe, the currency pair EUR/USD is finding it difficult to go lower. This means that there is a certain level of support and the currency pair might not go much below that level (around 1.0831).

The main focus of the day is the FOMC decision and Jerome Powell’s press conference afterwards. They might talk about making changes to something called quantitative tightening, but with the current financial conditions, it’s possible that nothing will change. The meeting might not lead to big changes, except for some small tweaks in wording within the policy statement – removing the need to address potential rate hikes. People are looking towards March and May as possible meetings that could influence the path of the dollar.

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