FXStreet (Barcelona) – The USD might see some downside post the FOMC meeting today but any weakness would be short-lived as Yellen will likely confirm a gradual pace of tightening, according to Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ.
Key Quotes
“The overall message from Fed Chair Yellen is likely to be that the Fed remains on course to begin raising rates later this year if the economy performs as expected, although the exact timing of the first rate hike is likely to remain unclear. She is also likely to reinforce the message that the expected pace of tightening is expected to be gradual.”
“For the interest rate market the message from the Fed is unlikely to be a big surprise which is already discounting a more dovish outlook for Fed policy. The updated Fed projections will merely move their thinking further into line with the interest rate market.”
“The US dollar may weaken modestly initially if the Fed funds rate and growth projections are lowered. However, the US dollar already appears to trading on the weaker side of yield spreads heading into the FOMC meeting which should help limit further downside potential.”
“Incoming economic data will remain important in determining the outlook for Fed policy and US dollar direction. If the recent improving momentum in the US economy and strengthening wage growth is sustained it is likely to make the Fed more comfortable about raising rates which may still be delivered as early September. In these circumstances, we expect that any US dollar weakness following the FOMC meeting will likely prove short-lived.“
(Market News Provided by FXstreet)