Low Dollar Volumes In Anticipation Of Federal Reserve Meeting
Tuesday’s trading session was characterized by low trading volumes and subsequently little movement as traders embraced a cautious approach prior to the upcoming Fed meetings.
The Federal Reserve scheduled a meeting for Wednesday for policy announcement. The Fed was scheduled to hold a two-day meeting on Tuesday and Wednesday, thus the decision by investors to avoid risky trades. Analysts expect no changes to the overnight policy rate, which was set at a 2.25% and 2.5% range.
Analysts eagerly waiting to see the Fed’s next move
Market experts also expect dovish statements from the Fed, especially due to the prolonged U.S-China trade war and discouraging employment data in May. Meanwhile, the US dollar index demonstrated a strong performance on Tuesday, June 18, with the price going as high as 97.74.
Dollar index performance on Tuesday
“Markets are largely keeping the powder dry ahead of tomorrow’s Fed announcement,” stated Cambridge Global Payments’ chief marketing strategist Karl Schamotta.
Traders may have also put on their caution jackets as a result of the trade talks between China and the U.S. which resumed on Tuesday. Chinese president Xi Jinping and US president Donald Trump met to discuss a way forward.
This may have influenced some excitement into the financial markets. However, it did not change the interest rate cut expectations.
The US dollar surged to a two-week high on June 17 courtesy of some positive economic data that was released the previous week. The surge is also questioning whether the Federal Reserve will have a dovish outlook in the monetary policy meetings scheduled for this week.
Investors have, however, been cautious and have avoided taking huge bets prior to the end of the meeting to avoid potentially volatile market conditions.
The Fed meetings are not the only factor that might a huge impact on the markets this week. The Bank of England is scheduled to make a decision on interest rates on Thursday and policymakers from the European Central Bank will hold a meeting this week in Portugal.
The market grows tenser over interest rate cut concerns
Meanwhile, market experts believe that there is a low likelihood of interest changes by the Fed in the U.S. this week after a report released on Friday highlighted strong retail sales figures. However, Federal Reserve head Jerome Powell will likely hint potential rate cuts shortly.
The retail data published last week influenced the probability of the Fed announcing a rate cut at the June 18-19 meetings to drop to 21.7% from 28.3%. This data was courtesy of the FedWatch tool used by the CME Group. However, it still maintains a high probability of rate cuts at next month’s meeting.
The interest rate cut uncertainty plus the volatile trade situation in the U.S. have not only affected the US dollar’s performance but also the treasury yields, which seem to be showing lower yields. The Fed has held out on interest rate cuts this year for as long as possible, especially after the criticism that it received a year ago for slashing rates unnecessarily.
The economic performance seems to be bombarded from all sides by trade standoffs, unfavorable market data, and interest rate cut concerns, among other things. Investors are waiting for the storm to come to an end so that stability may be restored.