The big event of the day and likely to keep every “trader” on their toes is of course the FOMC meeting later today.
The one thing almost everyone has in common is no one is looking for the FOMC to raise interest rates …not to mention the number looking at a December rise has also diminished (given the disappointing data). With the ECB suggesting they are prepared to go into (greater) negative interest rates and expand their QE initiative coupled with the PBoC cutting their rates for the 5th time in 2015 (China’s GDP dropped below psychological 7% –> 6.90% printed) the FED will be under extreme pressure to keep the norm and not rock the global financial markets/economies boat.
If you combine the ECB, BoJ, PBoC and BoE (assets and power) as one the FED will need to tread very carefully so as not to “upset” the work that is currently being done in those economies (latter 4). the last thing the FED needs is a trade/currency war with their “friends”. China alone have $5.1 tn in assets vs the $4.4 tn for the FED. China has enormous foreign currency reserves which can be used to pump into the Chinese economy not to mention their ability to devalue their currency (which I have noted is definitely on the cards).
Ms. Yellen has a lot to worry about. Recent disappointing US economic data, coupled with disappointing global economic data will keep the pressure on the FED to maintain rates where they are. If the FED were to raise rates which in turn (and we have spoken about this previously) will lead to an even stronger USD, the resulting strength will no doubt cut deeply into US export earnings and potentially lead the US back towards a recession, something NO ONE wants right now. What the FED needs to do now is support the PBoC, BoE, BoJ and ECB by not doing anything that could harm the intense work being done by those 4 Central Banks.
The recent move in the USD obviously hasn’t helped matters so today’s FOMC meeting and minutes will have short term implications for the USD. As no conference is scheduled for after the announcement we will have to dig deep to see if any rhetoric has changed in the minutes. Strap on your seatbelt we are in for a volatile period.
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