Earlier this week the Bank of Japan (BOJ) announced that it would buy as many government bonds as needed to help the economy.
The move is low key expected by market players so we didn’t see explosive reaction across the board.
Will the Fed inspire a more volatile price action when it publishes its decisions on April 29 at 6:00 pm GMT?
Here are the points you need to know:
What happened last time?
- Fed released its decision at the start of the week, two days earlier than scheduled
- Fed unexpectedly cut its rates to 0.00% – 0.25% range
- Fed announced purchase of $700B worth of Treasury bonds ($500B) and mortgage-backed securities ($200B)
- Fed slashed reserve requirements to zero across all account balances
- Fed coordinated with BOC, BOE, BOJ, ECB, and SNB to lower rates on currency swaps to keep financial markets functioning
The extent of the Fed’s policy changes, synchronized with the RBNZ and BOJ’s own policy surprises, helped stem risk aversion in the markets.
The low-yielding dollar traded lower across the board until the start of London session when it found a steadier support.
What are traders expecting this time?
- No major policy changes expected this week
- Fed could change pace and scope of asset purchases or lending programs
- Markets anticipate a form of forward guidance
- Powell will conduct a presser at 6:30 pm GMT
Since the mid-March decision the Fed has launched an alphabet soup of stimulus programs including asset purchases with “no limit” and easier capital requirements for big banks.Meanwhile, the U.S. government has signed billions in fiscal aid and states are working overtime to reopen at least some part of their economies.
This is why market players think the Fed will hold off from any more policy changes this week.
However, we could hear some sort of forward guidance that covers interest rate and economic outlook especially since FOMC will publish its decision just hours after we see the first GDP estimate for Q1 2020.
Not sure which pair to trade during the event? Here’s where USD is trading relative to the longer-term daily SMAs:
Meanwhile, here’s a list of the most volatile major dollar pairs in the last 30 days: