Forex: all eyes on the FOMC
09:08, 3 November 2021
Forex markets are quiet on Wednesday as traders await the today’s Federal Open Market Committee (FOMC) meeting, attended by members of the US Federal Reserve (the Fed), which is expected to announce the start of asset-purchase tapering.
Markets will also pay particular attention to the Fed’s interest-rate guidance and its comments on inflation outlook after the US Personal Consumption Expenditure (PCE) Index – the Fed’s favourite inflation gauge – which just hit 30-year highs last week.
How is the dollar faring, compared to other currencies?
The value of the US dollar remains almost unchanged among the majority of its peers, although it is down by 0.2% against the Aussie dollar and by 0.3% versus the Kiwi dollar, with both currencies rebounding from prior losses.
In emerging markets, the Turkish lira is down 0.7% against the greenback after the release of the October consumer price index (CPI), while the Russian ruble depreciated 0.5% on the back of weaker oil prices.
For a comparison of other currency exchange values, please see the chart below with today’s figures.
What is your sentiment on AUD/USD?
FX Daily Matrix: 3 November 2021
The dollar index (DXY) is trading at 94.08, flat on the day and 0.5% lower from mid-October highs.
The FOMC meeting is the primary focus of the day, with the announcement of a $15bn (€12.9bn, £11bn) reduction in monthly asset purchases beginning this month and ending in mid-2022, as well as an inflation rate lift-off after tapering.
Apart from the FOMC, the ADP Research Institute’s employment data for October and the Institute for Supply Management’s (ISM) service-sector index will be released today, which could also offer insights concerning Friday’s non-farm payrolls data.
Among market analysts, the consensus is that an employment increase of up to 400,000 in the private sector can be expected in October, while the ISM’s index data for the service sector is expected to tick up to 62.0 from the previous figure of 61.9 points.
According to the most recent Commodities Futures Trading Commission (CFTC) data, non-commercial US dollar net-long positions have been declining since September, indicating that the tapering and rate increases have already been priced in by the market.
Chart of the day: US PCE inflation rate
The EUR/USD pair was last trading at 1.1582, timidly up by 0.09% from the prior close.
On the data front, today the unemployment rate for September will be released, with the consensus of expecting a further reduction to 7.4% from 7.5% in August. ECB’s Elderson and Willeroy are also scheduled to speak today.
After three consecutive sessions in the red, the GBP/USD pair is hovering around 1.3619 (+0.04% on the day).
Today, Andrew Bailey, the Bank of England’s (BoE’s) governor, is due to speak at the COP26 Climate Change Conference in Glasgow, although he is not expected to make any remarks on UK monetary policy prior to tomorrow’s decision.
The market is pricing in a 61% chance of a 15 basis point (bps) rate hike, but there is a wide range of views among analysts.
GBP net-long speculative positions were extended for a third consecutive week as market participants have been betting on a faster-than-expected policy normalisation by the BoE, according to the latest CFTC data.
FX Performance Heatmap: 3 November 2021
The AUD/USD pair is recouping its previous losses, rising 0.2% on the day, as the China Caixin services’ purchasing managers’s index (PMI) data came in higher than expected at 53.8bps (versus the 53.1bps estimate from the market consensus), boosting sentiment in high-beta markets.
Yesterday, the Reserve Bank of Australia (RBA) officially dropped the yield target of 10bps for the April 2024 Australian government bonds, left the asset purchases unchanged at $4bn a week until at least mid-2022 and held the cash rate steady at 0.1%.
However, Philip Lowe, RBA governor, pushed back against speculation of an early rate lift-off, signalling that the first hike may not be before 2023.
Read more: These two forex pairs are reaping benefits of the oil rally
Read more: Inflation: What does it mean for stocks?
Markets in this article