USD retains a soft tone – Scotiabank

USD is trading lower. All other major currencies are posting gains, while global equities are mixed and bonds are broadly weaker as markets look ahead to this afternoon’s FOMC outcome, notes Shaun Osborne, chief FX strategist at Scotiabank.

Markets await the Fed’s decision

“Beyond the rate decision itself, currency reaction will be shaped by a number of factors — the policy statement, the Fed’s latest economic forecast and dot chart, and Chairman Powell’s press conference.”

“There is likely to be some – limited – scope for near-term USD gains on a 25bps cut, while a 50bps cut will keep broader pressure on it. In any case, the charts reflect a generally negative tone in DXY across the short, medium and long term studies.”

“Loss of support in the index at 100.55 targets a 1-1.5% decline in the index in the short term (and may result in a decline of around 3%). Note that DXY’s estimated fair value (based solely on weighted spreads) is at 99.6 today.”