Main objective of the Fed’s decision for the Forex market
- Interest rate decision to watch closely
- The euro gains on a weaker dollar
- Stock futures move slightly higher
The Change market is set to move today, but not before the big decision of the day is closely watched by traders and analysts. This is the Federal Reserve’s interest rate decision. The general expectation of Jerome Powell and his policymakers is that rates will once again rise substantially. This sent the dollar into a consolidation phase which benefited the euro. At the same time, trading on Wall Street remains calm ahead of the decision.
Market watch before rate decision
Interest rates and their variations have always played a role in the market and for those currency trading any currency in the world. However, this influence has been greatly amplified in recent months, as the Fed is unleashed to reduce the inflationary pressures of the moment. Jerome Powell and his team of policymakers have come under increasing scrutiny almost since the economy began to get back to work after the pandemic. At the time, inflation was considered transitory. It was not the case.
All eyes then turned to today’s announcement from Powell following their two-day policy meeting. The general expectation is that rates will rise another 75 basis points. Anything other than that would have a big impact on both the dollar and the market in general. The overall state of the economy is also under the microscope with job openings in September and the October manufacturing PMI rising to 50.2.
The euro seizes the opportunity to reach parity
While forex brokers and traders are battling inflation in the US and rising rates, the reality in the EU is not that far off. Although it lost ground on Wednesday following comments from German Bundesbank President Joachim Nagel that the bloc still had a long way to go with rate hikes, the currency has regained the upper hand.
After having been considerably lower, the euro, in the absence of many buyers of US dollars, is once again approaching the point of parity with the greenback. This is where the common currency has tended to retreat. There is a widespread belief however that with the US focused on the outcome of the Fed rate hike, the Euro could fly a march above parity.
Stock trading remains cautious
With a largely positive week already in sight, there was little action in the early hours on Wall Street, if not overnight. This slowdown in trade frequently occurs ahead of important economic news like the rate hike announcement later in the day.
In the early morning, the Dow Jones remained relatively unchanged, falling about 0.1%. Meanwhile, the S&P500 remained in the same position it closed yesterday, while the tech-heavy Nasdaq improved 0.1%. More movement will be certain once the rate change is announced.