When is the Fed interest rate decision and how could affect DXY?

The Federal Reserve will announce its decision at 18:00 GMT. At the same time, updated macroeconomic projections of FOMC officials will be released, including the “dot plot” (interest rate estimations). Janet Yellen will hold a press conference at 18:30 GMT.

Key notes

At the last meeting, the US central bank left rates unchanged (as expected) and left the door open to more hikes, in line with the speeches of many FOMC members.  Today the US dollar lost ground sharply after retail sales and inflation data, that came in lower-than-expected. Also the odds for a rate hike today dropped modestly but the data could have an impact on medium-term expectations about the path of monetary policy. 

Market consensus expects an interest rate hike of 25 basis points, to the 1.00% - 1.25% range. The CME Group FedWatch Tool, show the odds of a rate hike around 93.5%. A bigger hike is off the table, while a small minority of analysts, warn that the Fed could (or should) not raise rates. 

“Another 25bps hike is in the pipe for this meeting but uncertainty is growing for the future course of monetary policy in the second part of the year. With the Fed’s goals going in opposite directions (lower inflation and lower unemployment rate)”, said analysts from Natixis. 

Among the few that expect no change in rates, are analysts from Danske Bank. According to them, current economic data do not justify a hike (before today’s US reports). They see that the central bank could instead announce triggers for quantitative tightening. 

FOMC preview: Expectations are high but data do not justify a hike yet – Danske Bank

FOMC: What to expect from the June meeting and press conference – Deutsche Bank

FOMC Preview: 13 major banks expectation from June meeting

Implications for DXY

Markets consensus point to a rate hike of the Fed Funds rate. So that decision by itself could no have a significant impact on the US dollar. If the central bank decides to leave rates unchanged, the US dollar could drop further. 

Traders and analysts will look into the projections, the statement and Yellen’s press conference in order to take clues about the future path of monetary policy. They will try to see how the normalization process continues after today. A more “hawkish” path, could boost the US dollar. While on the other direction, signals that the Fed could lower or pause tightening cycle, could weaken the greenback. Volatility is expected to remain high, from before the release of the statement and through Yellen’s press conference, that usually lasts 50 minutes. 

The US Dollar Index is trading at the lowest intraday level since the US elections. A consolidation under 96.45 would leave the index vulnerable to a continuation of the decline. The first support is seen at 96.00 followed by 95.85 and then 95.20. If the DXY manages to rise back above 96.45 it could remove some of the bearish pressure but it needs a daily close on top of 97.20 to signal that a stronger recovery is possible. 

About the interest rate decision 

With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, is the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency. A rate cut tends to weaken the local currency. If rates remain unchanged (or the decision is largely discounted), attention turns to the tone of the FOMC statement, and whether the tone is hawkish, or dovish over future developments of inflation.

About the FOMC statement 

Following the Fed's rate decision, the FOMC releases its statement regarding monetary policy. The statement may influence the volatility of USD and determine a short-term positive or negative trend. A hawkish view is considered as positive, or bullish for the USD, whereas a dovish view is considered as negative, or bearish.

About FOMC economic projections 

This report, released by Federal Reserve, includes the FOMC's projection for inflation and economic growth over the next 2 years and, more importantly, a breakdown of individual FOMC member's interest rate forecasts.

Key Notes

FOMC Preview: 13 major banks expectation from June meeting

We are closing into the FOMC’s June policy meet decision and as the clocks tick closer to the decision timing, following are the expectations as forecasted by the economists and researchers of 13 major banks along with some thoughts on the future course of Fed’s action.