Powell’s patience is not running out Powell’s patience is not running out Powell’s patience is not running out

Powell’s patience is not running out

Forex 3 minutes to read
MO
Michael O’Neill

FX Trader, Loonieviews.net

Summary:  USDJPY and USDCHF are sharply higher ahead of Wednesday's FOMC meeting, but this is more a reflection of heightened risk aversion sentiment than US interest rate direction.


The Federal Open Market Committee statement of May 1 said that the Committee’s current economic view for “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.” They qualified their view by saying that “in light of global economic and financial developments and muted inflation pressures, the Committee will be patient.” 

The Fed’s “patience” fuelled speculation that the next move in US interest rates was down. The CME “Fedwatch tool” gives a 67.9% probability for a July 31 rate cut and only a 20.9% probability of a cut on Wednesday.

Many analysts are anticipating that the FOMC will signal their intention to trim rates at Wednesday's meeting. FX traders are on the fence with that notion. EURUSD closed at 1.1195 following the May 1 FOMC meeting, peaked at 1.1342 and is sitting at 1.1236, as of 13:50 GMT. The Antipodean currencies are sharply lower against the US dollar, and the Canadian dollar is close to unchanged. USDJPY and USDCHF are sharply higher, which is more a reflection of heightened risk aversion sentiment than US interest rate direction.

The risk aversion sentiment stems from the US/China trade war. Tensions have escalated and last week Treasury Secretary Steven Mnuchin admitted that a President Trump/President Jinping meeting at the G-20 meeting was not even formalised. This morning, US Commerce Secretary Wilbur Ross said that Trump was willing to proceed with tariffs on the remaining $300 billion of Chinese imports. He said, “We will eventually make a deal, but if we don’t, the president is perfectly happy with continuing the tariff movements that we’ve already announced, as well as imposing the new ones that he has temporarily suspended.”

Powell will be patient ahead of the Osaka G20 meeting. Trump may not. It wouldn’t be a stretch for him to suddenly tweet “all is good, and a China deal is imminent.” 
Chart:EURUSD 4 hour. Source: Saxo Bank.


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.