All eyes turn to the US Federal Reserve’s policy-setting decision on Wednesday and end-of week US Gross Domestic Product growth data. The Fed is very unlikely to change interest rates or monetary policy, but it will unveil a fairly significant new tool in its arsenal: interest rate forecasts. Federal Open Market Committee voting members will show when they interest rates will be raised through 2016—giving a much more specific view on when markets can actually predict its next moves. It’s difficult to predict what the reports will show and much less predict how markets will react. Yet we feel it may have fairly significant effect on the US Dollar, US S&P 500 and other key asset classes.
Markets will otherwise look at end-of-week US GDP growth figures with great interest. Surprisingly robust domestic unemployment figures have boosted expectations for economic expansion, and analysts predict the economy grew at its fastest pace since Q2, 2010. We get the sense that such lofty predictions leaves a lot of room for disappointment, however; expect markets to sell off on any big misses. The USD could see sympathetic declines (or advances) if the print affects outlook for broader growth in any significant way.
US Dollar traders should otherwise keep a close eye on global financial market risk appetite. The US Dollar has enjoyed fairly significant rallies on any sudden sell-offs in the S&P 500 and similar ‘risk’ barometers. The S&P seems happy to rally to fresh multi-month peaks with very few pullbacks. Yet such remarkably consistent strength leaves clear risk that markets have grown altogether too complacent.
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