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

The Federal Reserve will announce its decision on monetary policy at 18:00 GMT. There won’t be a press conference. The minutes will be released in three weeks (May 23) and the next meeting will be June 12/13 (will include new macroeconomic projections and post-meeting press conference). 

Key notes

Market participants expect no change in rates and there is no press conference, so the impact on price action could be limited. Analysts will search in the statement for signals about the future path of monetary policy. The outlook for inflation is likely to gain attention particular after yesterday data showed that the Core PCE rose 1.9% y/y. Today ADP data showed that the labour market remains solid. 

US inflation and a solid job market continue to support more rate hikes from the Federal Reserve. According to the CME FedWatch Tool the odds of a rate hike today are below 6% and jump to more than 90% for the June meeting. 

“The Fed on Wednesday is most likely to deliver an unchanged monetary policy along with a hawkish statement, the real question may be, how hawkish? Any discussion or rhetoric change in the policy statement that suggests a potentially increased outlook for inflation and/or economic growth, or otherwise hints at the possible need to pick up the pace of tightening, could have the effect of extending the dollar rally while placing further pressure on equity markets”, said James Chen. 

Implications for DXY

The tone around the greenback improved significantly last week supported by higher US yields and economic data. Since April 17, the US Dollar Index (DXY) rose in 10 out of twelve trading days. The DXY awaits Fed’s statement trading at 92.68, at the highest level since December. 

The short-term tone points to the upside. If the Fed leaves the door open to more rate hikes or shows a hawkish message the greenback could rise further. To the upside, the immediate target is seen at 92.85. Above the next strong resistance levels might lie at 93.00 and 93.30. 

The DXY has been rising constantly before the meeting. The statement could trigger a correction either from the tone or because of a “buy the rumor, sell the facts” behavior.  The immediate support is located a t92.50, followed by 91.80 and 91.45/50. A consolidation below 91.80 would ease upside pressures. 

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. A rate cut 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.