No surprises expected from the FOMC

July 28 2021

USDJPY failed to break 110.60, preferring to tack US bond yields lower ahead of the FOMC

The Federal Reserve 2 day July meeting ends today. The chances of a change in monetary policy are unlikely. The reason for this is that the number of Covid Delta variant cases is on the rise in the USA.

Just as the world was thinking covid 19 was in the rearview mirror, along comes delta, which continues in casting a shadow over employment and sustainable growth with fear of new lockdowns.

Lockdowns are the order of the day in the swathes of Asia and Australasia. However, the US continues to open its economy despite not having enough people vaccinated. They may be vulnerable to new lockdowns and the economic consequences of doing so. This uncertainty is going to make the FOMC put its tapering plans on hold for longer.

Despite inflation looking like it might be here to stay for some time, I am pretty sure Fed Chair Powell will stick to his transitory line. But do we still believe him? The bond markets do, or maybe they don’t want to fight against the Fed. Yet.

The FOMC will go out their way to be dovish again this month due to the uncertain pandemic outlook. I am starting to think that a presumed announcement on monthly tapering bond purchases at their Jackson Hole symposium may now be too soon.

So, could the dollar be in trouble tonight unless there is a surprise from the FOMC on tapering? It looks to me that the market is already positioning itself for a dollar negative event.

However, US dollar bulls probably won’t despair too much, as the US Q2 2021 GDP released tomorrow should be a strong number. The GDP will probably help recover any dollar losses incurred today, in doing so keeping forex markets confined to recent trading ranges.

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Published by Neil Callard

Forex Trader and Educator. 30 years trading experience, of which 20 years was market making in major currencies in large international financial institutions.

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