When is the Fed interest rate decision and how could it affect DXY?

The Federal Reserve will announce its decision on monetary policy at 19:00 GMT. There won’t be a press conference. The minutes will be released in three weeks (November 29) and the next meeting will be December 18/19 (will include new macroeconomic projections and post-meeting press conference). 

Key notes

No change in rates is expected and the meeting won’t be followed by a press conference, so the impact on price action could be limited. Market participants will look for clues about the path of monetary policy.  Equity prices continued to rally in Wall Street after the mid-term elections and the US dollar and yields moved sideways. 

Economic data continues to show a solid US economy that warrants the current gradual tightening policy from the Fed. The next rate hike is expected in December.  “We do not expect many new developments at the November FOMC meeting. Since the meeting in September, the economy has remained on solid footing. In the post-meeting statement, the FOMC will likely state that economic activity continued to grow steadily rather than "rising at a strong rate,” said analyst at Nomura. 

There is a debate gathering momentum regarding US monetary policy: interest rates on excess reserves and the odds of the Fed cutting those rates. “We do not think the Fed will cut the interest rate on excess reserves by 5-10bp at this meeting despite the effective Fed funds rate trading exactly at the IOER. We think the Fed will wait until December and then hike the target range by 25bp but only raise the IOER by 15-20bp”, explained analysts at Danske Bank. They see the Fed Funds rate on track to 3%, the neutral rate, probably reached by June. 

No major changes are expected from the statement today. Nordea Markets analysts think the Fed will be hesitant of sending dovish signals by putting additional emphasis on financial developments and don’t expect major changes to the language.

Implications for DXY

Since the September meeting, when the FOMC, as expected, rose rates, the US Dollar Index rose constantly until last week, when it lost strength above 97.00, the highest level since June 2017. Then pulled back, finding support above 96.00. Ahead of the meeting was modestly higher for the day, trading at 96.30. The trends point to the upside but a weekly close above significantly 96.60 is needed in order to signal further gains ahead. The index failed around those level back in August and last week, triggering the correction. 

Not much action is excepted from today’s meeting but a hawkish tone from the FOMC, signaling that rates could rise higher than previously expected or faster, could boost the greenback. Above 97.00, the next target is seen at 97.50. 

On the flip side, dovish signals, like increasing concerns about the global outlook or the possibility of a pause in the gradual rate hike cycle could send US yields lower, weakening the US dollar. From the current level, the immediate relevant support is located near 96.05, and below here at 95.70, a key uptrend line that if broken, would suggest more losses ahead. 

About the interest rate decision 

With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency. A rate cut tends to weaken the local currency. If rates remain unchanged (or the decision is largely discounted), attention turns to the tone of the FOMC statement, and whether the tone is hawkish, or dovish over future developments of inflation.

About the FOMC statement 

Following the Fed's rate decision, the FOMC releases its statement regarding monetary policy. The statement may influence the volatility of USD and determine a short-term positive or negative trend. A hawkish view is considered as positive, or bullish for the USD, whereas a dovish view is considered as negative, or bearish.