When is the Fed interest rate decision and how could affect DXY?

The Federal Reserve will announce its monetary policy decision at 18:00 GMT today and will release a press statement at the same time. There won't be a post-meeting press conference nor an updated summary of economic projections.

Key notes

Since the decision to hike the rates by 25 bps in March, the expectation of a rate hike in May remained feeble. In fact, the CME Group FedWatch Tool shows virtually no chance of a rate hike today. The recent macro data from the United States also suggested that the economy has lost some momentum during the first quarter of 2017. Real gross domestic product (GDP) increased at an annual rate of 0.7% in Q1 after recording a 2.1% growth in the last quarter of 2016.  

Furthermore, the PCE price index, Fed's favorite gauge of inflation, contracted 0.2% on a monthly basis in March and dragged the yearly rate below the Fed's 2% target rate to 1.8%.Although the target range of the Fed funds rate is expected to remain unchanged at 0.75% - 1%, the language used in the policy statement could provide some fresh insights on how the Fed views the state of the economy after the weak data. 

Analysts at Nomura suggest that the language of the first two paragraphs of the post-meeting statement, as they relate to recent economic developments and expectations, will be under scrutiny as they may give additional clues on the committee’s intentions for the next rate hike.

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Implications for DXY

The interest rate decision by itself is unlikely to provide a fresh catalyst for the USD. The main focus will be on the monetary policy statement. The likely scenario is that the statement won't bring any big surprises as it won't include an update on the economic projections. Also, the Fed usually tries to communicate any changes in its language in a clear way to the markets and picks the meetings where there is a press conference to be able to do that.

Nevertheless, any hints that could strengthen a rate hike expectation in June could bring a greenback buying wave. The US Dollar Index would need to make a clear break above the 99 handle to test the significant 100 psychological level. Above that level, 101.30 (Apr. 10 high) could be seen as the next significant target. On the other hand, a pessimistic view of the economy could hurt the prospects of two more rate hikes in 2017 and put the USD under pressure against its rivals. The initial support for the DXY aligns at 98.55 (Apr. 25 low). With a break below that level, the index would refresh its lowest level since Trump's election victory and aim for 98 (psychological level) and 96.95 (Nov. 4 low).

About the interest rate decision 

With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Federal Reserve meets at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency, as it is understood as a sign of a healthy inflation. A rate cut, on the other hand, is seen as a sign of economic and inflationary woes and, therefore, tends to weaken the local currency. If rates remain unchanged (or the decision is largely discounted), attention turns to the tone of the FOMC statement, and whether the tone is hawkish, or dovish over future developments of inflation.

About the FOMC statement 

Following the Fed's rate decision, the FOMC releases its statement regarding monetary policy. The statement may influence the volatility of USD and determine a short-term positive or negative trend. A hawkish view is considered as positive, or bullish for the USD, whereas a dovish view is considered as negative, or bearish.