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Another month, another round for the Fed! In case you haven’t seen this week’s trading calendar yet, you should know that the FOMC statement is one of the potential market-movers we will see before the NFP report is released this week.

Here’s what you need to know about the event:

The Fed just raised its rates last time

Janet Yellen and her gang last had a huddle in March when they raised their interest rate range for the first time in 2017.

If you’ve read the 4 highlights of the statement and the 5 takeaways from the meeting minutes, then you’ll know that the (official) reason why the Fed hiked its rates was because it was “appropriate in light of the economy’s solid progress toward [the Fed’s] goals of maximum employment and price stability.

Yellen added that the decision was a “reflection of the confidence we have in the progress the economy has made and our judgement that that progress will continue.

Minneapolis Fed President Neel Kashkari voted “nay” to the decision, however, because “recent data had not pointed to further progress on the Committee’s dual objectives.

Market players seem to echo Kashkari’s misgivings particularly since the Fed’s economic projections were mostly unchanged.

USD's Reaction to the FOMC Statement
USD’s Reaction to the FOMC Statement

At the end of the day, the lack of hawkish remarks in the statement – especially after Fyre Festival-style hyping by Fed members – was one of the reasons why the dollar tanked during the release.

Reprieve didn’t come until days later when the meeting minutes was released. In it, Fed members talked more about rebalancing their balance sheet, which investors took to mean that the Fed is planning to raise rates faster so members could get started on the rebalancing part.

Market players aren’t expecting changes this month

And it’s not because they got burned by March’s disappointment.

See, analysts are pointing out that the recent reports simply aren’t pointing to better economic conditions, at least not enough for another rate hike.

June FOMC Rate Hike Odds (as of May 2)
June FOMC Rate Hike Odds (as of May 2)

Growth slowed to its worst quarterly level in three years while personal income only inched 0.2% higher and consumer spending didn’t grow at all. Meanwhile, ISM releases reflected a contraction in construction spending and manufacturing growing at its slowest pace this year.

More importantly, the personal consumption expenditures (PCE) index, the Fed’s preferred measure of inflation, clocked in at 1.6%, which is waaaay below the Fed’s 2.0% target.

Does this mean that the event will actually be a non-event?

Not necessarily. While market players aren’t expecting policy changes tomorrow at 6:00 pm GMT, there are several factors that could cause volatility for the dollar around the release:

1. Gap in expectations vs. reality

Remember that the odds of a rate hike in June rose from 46.6% to 66.3% between the FOMC statement and meeting minutes release. The numbers ticked even higher after the French elections when it jumped above 70% before settling down to 67.4% today.

But, as mentioned above, few economic reports actually support a rate hike. Unemployment might have slid lower, but consumer spending and income came in weak while the service and manufacturing sectors slowed.

If the Fed decides to cite recent weaknesses in economic reports, then dollar bulls might re-align their expectations and cause profit-taking across the board.

2. Limited trading volume

With Japanese traders out for a week-long celebration; European traders just back from their Labour Day holiday, and traders staying in the sidelines ahead of the NFP release, we might see either limited or exaggerated moves in reaction to the statement. Make sure you’re prepared for either scenario!

3. Weird May trend for the dollar

As we noted on our “Sell in May” post, the dollar has a knack for gaining ground against its major counterparts in May as traders take profits on their dollar-denominated assets.

If the Fed shares any hints about hiking in June, then traders might use the event as catalyst to start unwinding their higher-yielding positions and buying the dollar. Look out for soundbites that might make or break the dollar for the rest of the week (if not the month)!