Price Action Forecast on US Federal Reserve Interest Rate Decision

October 28, 2015 - Written by Minesh Chaudhari

STORY LINK Price Action Forecast on US Federal Reserve Interest Rate Decision

Federal Reserve Interest Rate Decision to Dominate Trader Focus Today, US Dollar Volatility Predicted

There is only one show in town today as far as currency market participants are concerned.

The US Federal Reserve makes its latest monetary policy announcement at 1800hrs GMT and the fallout is forecast to trigger major price action for several leading tenders.

Our chief analyst makes his projections for the effect of various Fed scenarios below.

Fed Predicted to Hold Rates: Pound Sterling Forecast to Strengthen against AUD, NZD, CAD and ZAR

The vast majority of commentators believe that the Fed will opt to maintain its headline rate of interest at its current all-time low banding of 0.0 – 0.25% this evening.

Their confidence in this prediction drives from the belief that American policymakers will not chose to increase rates in a month which does not see Fed Chair Janet Yellen appear at a post-announcement press conference.

Meetings without a press conference have come to be considered secondary to the ‘main meetings’ which also bring the publication of detailed economic forecasts from the voting rate-setters.

For this reason, an announcement of a rate hike from the Fed later today would represent a huge surprise and the upshot would see investors shift en masse out of risk-driven assets.

In such a scenario, the Pound Sterling (currency : GBP) would be likely to record significant gains against the high-yielding Commodity Dollars, (AUD, NZD, CAD and ZAR).

Dovish Federal Reserve Could Weigh on Sterling Demand, Pronounced Price Action Likely

Analysts believe that it is highly probable that the Fed’s board will decide to maintain US interest rates at their current level tonight.

However, the announcement is still likely to trigger pronounced price action as FX insiders pore over the exact wording of the accompanying statement published by the US central bank.

If the Fed completely rules out a rate rise for 2015, then analysts forecast that the Pound Sterling will record fresh losses against the Commodity Dollars.

Conversely, with futures markets currently pricing in only a 30% chance of a 2015 US rate increase, a message suggesting that the Fed’s December get-together will yield a one-off rate hike – the so-called ‘one and done’ scenario - would be likely to see Sterling record more limited gains against AUD, NZD, CAD and ZAR.

The situation remains finely balanced.

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