At 2:15 PM on Tuesday, March 16th, the Federal Open Market Committee (FOMC) announces their rate decision and statement of the same.
Interest rates are the primary tool Central Banks use to control the economy. Rates are lowered to spur growth and increased to slow economic expansion. The actual rate decision is often widely anticipated so it’s generally a non event. However, the simultaneous release of the rate statement is what moves the FX market. In this statement, the Fed often lets known its sentiment for future monetary changes and the whys for current policy. Hints and subtle clues are scrutinized by the major players in currency trading as they scramble to realign positions with the current Fed sentiment.
It is highly unlikely that the Fed will change interest rates despite the tumbling U.S. Dollar. The primary job right now is to restore bank credit regardless of the damage done to the USD. The EUR/USD pair climbed over the last 3 trading sessions. However, today, a sharp gain in the Greenback knocked the pair back down. Listen closely to the rate statement, as hints may be dropped regarding tightening.
David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.
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