Dollar index briefly slips below 84.00 ahead of FOMC rate decision

Wednesday, September 17, 2014

The dollar index slipped below 84.00 briefly yesterday before recovering to slightly to end the session at 84.074 as investors struggled to hold their nerve ahead of today’s FOMC rate’s decision. Market participants expect the target rate to remain unchanged at 0.25% with tapering of QE to pare back an additional $10bn this month, bringing the total monthly asset purchases to $15bn. The dollar index has remained in a holding pattern above 84.00 after consolidating recent gains as investors struggle with direction. Market participants will pay close attention to the Fed’s policy language for any indication of a timeline with particular attention being paid to comments on the labour market. Spot gold prices posted gains for a second straight session yesterday with early gains this morning testing levels towards $1,240/oz as last minute jitters saw safe haven demand increase.

The PBOC is expected to offer leading banks stimulus of 500bn yuan ($81bn) in an attempt to reverse the economic slowdown. Investors had anticipated the central bank would increase stimulus measures as recent data releases had highlighted the weaker growth outlook with hopes that the temporary credit expansion, which has a three month term attached to it, will fuel demand. Further details according to major newswires as the measure has not been formally announced indicate that 100bn yuan will be provided to each of the five biggest banks for the three month period with market participants hopeful of a new easing stance towards monetary policy by the PBOC. Financials rallied higher in Hong Kong while both the CSI 300 and Shanghai Composite posted modest gains during the overnight session.

Investors will be eagerly anticipating Yellen’s press conference as the two day FOMC meeting draws to a close. Market participants will be on the lookout for any indication of a likely interest rate increase, however, PPI data for August released yesterday indicated that prices are struggling to pick up and with CPI data due out today expected to show a slight slowdown in price growth economists polled by Bloomberg expect increases in interest rates to be drawn out gradually between 2015 and 2017. Further details on quarterly projections for growth, unemployment and inflations will be provided during the press conference and subsequently at next month’s release of the FOMC meeting minutes.

DXY momentarily slips below 84.00 ahead of Fed rate decision

DXY Curncy DOLLAR INDEX SPOT 2014 09 17 07 48 29

Gold prices gain on Fed policy jitters

XAU Curncy Gold Spot Oz 2014 09 17 07 56 44

Events for today

0930

UK

Aug

Claimant Count

0930

UK

Aug

BOE minutes

1000

EZ

Aug

Inflation

1330

US

Aug

CPI Core

1500

US

Sep

NAHB Housing Market Survey

1530

US

w/e

EIA Energy Stocks

1630

US

Aug

KC Fed

1900

US

Sep

Fed Rate

All times UK Local Time

Topics: US Fed, Gold, DXY, PBOC
More from: Kash Kamal