*Markets are expecting another rate cut by the Fed
*If the Fed doesnt cut the rate at all, expect some swings in below assets
*Sterling tested its best levels yesterday again and more to come
FOMC Rate Decision- Expect The Unexpected
The Fed is going to deliver its decision on the monetary policy later in the day. The question on everyone’s mind is if this is going to be a hawkish rate cut or dovish rate cut because this is all that matters.
This particular event doesn’t have much significance and the reason that we are saying this is that it is widely expected in the market that the Fed is lower the rates again today. Remember, the Fed has already cut the interest rate back in September and in July and this will be their third consecutive interest rate.
What will be interesting to see is if the Fed is going to cut the interest one more time this year and if the policy statement shows that there is a strong possibility of that happening then it means that the Fed is really on the easy monetary policy path. This would be perceived by the markets as a dovish rate cut
On the flip side, if the Fed says that they are not going to cut the interest rate anytime soon unless it is absolute necessary—that means a major change in the economic health, it would be a hawkish rate cut.
The possibility of another interest rate this year would really break the dollar index back. The price action tells us that the weakness is brewing. The index is set to close the month in negative territory for the first time since June this year.
The index is also set to break its upward trend line and if this happens then it would open the door for the index to move towards the 95-mark.
The weakness in the dollar index would be positive for the shinning metal. We would expect the gold price to move above the 1500-mark later today—currently, it is trading at 1489.
To conclude, we expect the Fed to surprise the markets today with a hawkish rate cut. In fact, you can never rule out a possibility of no rate cut at all today and that would really take investors by a big surprise. Under those circumstances, we would expect huge upward swing for the dollar index and a major retracement in the equity markets, especially the US markets which is already sitting at a record high.
Sterling Best Monthly Performance
Sterling has seen some serious whipsaws during this year and the pound is set to record the biggest monthly gain since January 2018. The currency has enjoyed its best levels during this month and the currency retested some of them yesterday again when Parliament backed an early election appeal.
The general elections will be taking place in the UK on December 12 and this simply means that the threat of no-deal Brexit has receded. More importantly, what businesses want is this misery to be over so that they can plan their inventory accordingly.
Looking at the polls, it is highly likely that Boris Johnson would win the elections and this means the current deal that he holds with the EU is going to be the basis for divorce with some minor alterations.
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