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Forex: FOMC to determine next step for dollar

The two day FOMC meeting concludes this evening with their interest rate decision and this time their quarterly economic projections will see an update to the famous dot chart. A great deal of attention has been placed on when the tightening cycle will start and it wasn’t too long ago that many were expecting tonight to mark the first rate hike, however the Fed is trying to shift the market’s focus onto the tightening cycle as a whole, which means not just when it will start, but when and where it will peak. Unquestionably last month’s nonfarm payroll was impressive enough to trigger a shift in expectation of a hike slightly earlier, so to September and this will be key as to how this is assessed in tonight’s press conference and economic projections, with the potential for a dollar bounce. However, Yellen has referred more frequently to global risks in recent months so it’s hard to see her stance being more hawkish and to see a repeat of the dollar strength we saw earlier in the year.

Also today there’s UK unemployment data released at the same time as the BOE minutes so there could be some moves in sterling which has been gaining ground so far this week. Here it’s the average earnings which will be closely watched with the figure expected to jump from 2.2% to 2.5%. Another potential market making moving event to keep an eye on comes shortly after the FOMC when IMF’s head Christine Lagarde makes a speech in Brussels.

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