The markets opened down more than 40 points in the first hour of trading as traders prepare for Wednesday’s Fed Open Market Committee in which the U.S. central bank could raise interest rates for the first time since 2006.
The U.S. dollar was at three-week lows against a basket of currencies as traders anticipate that Janet Yellen and the central bank will keep interest rates low and explore a potential rate hike in December. The dollar had moved a bit higher in the trading session to 95.26, after falling as low as 94.913, its lowest level since Aug. 26. Most speculation implies that the Federal Reserve will delay a rate hike in the wake of other geopolitical concerns, most notably a report that indicated that China’s economy has fallen well below its benchmark growth rate of 7%. Expect for the bank’s statement on Thursday to offer some greater clarity into the bank’s justification for taking or not taking action on rates.
USD/JPY: The Japanese Yen was pushing higher against the dollar this morning as traders weighed expectations for the Bank of Japan’s meeting on monetary policy that kicked off today. The USD/JPY was off more than 0.4%. This morning, Deutsche Bank analysts projected that public pensions would provide support at 120 levels and buy on any sustained weakness. The investment firm projects a possible cap of 125 to 130 in 2016. Japan’s central bank will release a statement on its interest rate on Tuesday.
EUR/USD: The euro was sliding roughly 0.3% this morning, but has since trimmed losses to hit 1.1301. Traders have flown to safe haven currencies during today’s trading session in the wake of negative news regarding the Chinese currency. Tomorrow, traders will be weighing the health of the German economy with the release of the ZEW Survey in Germany and the euro area.
Saudi Selloff: Markets slumped last week on news that China’s central bank saw an all-time record in FX outflows during the month of August. Now Saudi Arabia has been unloading its Forex reserves in order to offset concerns about tumbling oil prices. The largest producing nation in OPEC – with more than 10 million barrels produced each day – is also one of the world’s largest holders of the U.S. dollar. With oil prices low, the selloff is putting downward pressure on the dollar’s value and upward pressure on U.S. Treasury bonds.
Oil Prices Rise: Crude oil prices were tacking lower this morning as traders weighed a supply forecast by OPEC that predicted that non-member nations would be slashing production in the wake of falling commodity prices. The report suggested that low oil prices – fueled by a report by Goldman Sachs on Friday that U.S. prices could hit $20 per barrel – were drastically affecting the output of U.S. shale producers. WTI October prices added 0.63% this morning, while Brent crude futures dipped 0.21% to $47.48.
No Deal: The U.S. House of Representatives voted down an Iran nuclear deal that would unfreeze more than $100 billion in assets and allow the oil-producing nation to begin exporting oil onto the global market. The vote, however, was largely symbolic as President Barrack Obama and Secretary of State John Kerry have enough support in the Senate.
Editor’s Note: Check back on Monday at FXHQ.com to get insight on what lies ahead with the Federal Reserve.