US dollar rallies ahead of Fed

The US Dollar is rallying amid renewed risk aversion after bouncing off key technical support. Will the Fed interest rate decision on Tuesday aid the rally or send the greenback back to multi-month lows?

Chart #1

United States Federal Reserve (FED)

Weekly Update

The FOMC is widely expected to maintain the benchmark Federal Funds rate target between 0.00% and 0.25% in Tuesday’s monetary policy meeting . As usual, market participants will be examining the policy statement to get an idea of the Fed’s outlook for growth, inflation, and interest rates going forward. Since the last meeting, economic data out of the U.S. has notably weakened, with the labor market of particular concern. Risk appetite will likely get a boost if the Fed hints at additional monetary stimulus to support the economy. Otherwise, financial markets may be disappointed by lack of action from the central bank.

Chart #2

European Central Bank (ECB)

Weekly Update

ECB government bond purchases have almost ceased completely. In the prior week, a mere 9 million euros of bonds were bought by the central bank. Purchases in the thirteen weeks of the program have totaled nearly 60.5 billion euros. The yield on the Spanish 10 Year Government Bond has tumbled in recent weeks, suggesting that the program has been a success. From a high of 4.88% in mid-June, the Spanish yield now stands near 4.03%.

Chart #3

Bank of England (BOE)

Weekly Update

Market participants await the quarterly Inflation Report from the Bank of England on Wednesday. The central bank’s inflation outlook will be a critical factor in its interest rate decision making process.

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