Will the Fed shake the markets?

FOMC takes place on Wednesday, 13.12.2023 at 9 pm GMT+2 • Add to calendar

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What is the FOMC?
The Federal Open Market Committee (FOMC) consists of 12 members of the Federal Reserve Board, who meet to discuss the US monetary policy and whether any changes should be made.

Jerome Powell is the board's current chair, and his comments can cause significant market movements, particularly on USD based pairs and assets. During the meeting, members share their opinions on the economy and discuss the best monetary policy appropriate for the current market situation.
When does it take place?
The Fed meeting typically takes place every six weeks (8 times a year) and occurs on a Wednesday, with the monetary policy statement and interest rate decision released at 19:00 and the press conference at 19:30 GMT. (Adjusted to 18:00 during US DST)
How does the FOMC affect the market?
Members discuss the current state of the economy and projected forecasts and whether the money supply should be tightened or loosened. The FOMC is in charge of open market operations (OMO), which involves the buying and selling of government securities.

The 'federal funds rate’ is determined by the actions of the FOMC and is the rate at which depositories lend overnight to the Fed which influences interest rates and foreign exchange rates, amongst other aspects of the overall economy.

Interest rates and their changes are important to the currency market, as unexpected changes in the tone of comments, not to mention actual moves, have the potential to cause significant volatility across all markets
 
Potentially, signals that the FOMC is preparing tapering balance sheet purchases could prove to be a very strong signal to the markets and seriously increase their volatility. In that case, the USD could get a boost. If, there are signals that it is too early to discuss a policy change, the USD might come under pressure, thus boosting stock and commodities prices.

Usually, the Fed tries not to provoke a spike in the volatility of the market and delivers its announcements with a balanced commentary.
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If the indicator value in the calendar turns out to be better than the forecast, investors will begin to open more trades to buy the national currency.

If the data is worse than the expectations, they will generally sell.

The greater the difference between the forecast and the actual value, the more the market will react. On the other hand, if the value of the indicator corresponds with the forecast, the market reaction is likely to be less significant.

For example, if the federal funds rate was previously expected to be 0.25% but then unexpectedly was raised to 0.50%, the value of the dollar would likely increase at US interest rates will become more attractive for investors in expense for other currencies and assets.

However, it is important to remember that trading on news involves significant risk of loss.

Sometimes the foreign exchange market does not react to the news in the way that most traders expect. An example would be if the unemployment rate increased, but at the same time, the number of new jobs in the US private sector (NFP) also increased.

Get market commentary and analysis on FOMC and other market news at FxPro.news →
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