Breaking News
Ad-Free Version. Subscribe now to follow markets, faster and distraction-free. More details

Will U.S. Dollar Rise Or Fall On FOMC?

By Kathy LienForexJan 26, 2021 22:49
Will U.S. Dollar Rise Or Fall On FOMC?
By Kathy Lien   |  Jan 26, 2021 22:49
Saved. See Saved Items.
This article has already been saved in your Saved Items
The Federal Reserve holds its first 2021 FOMC meeting Wednesday and, based on the performance of U.S. assets, investors don’t expect any surprises from the central bank. The rally in stocks and broad-based decline in the U.S. dollar are signs that investors are looking for steady policy. That means continued commitment to accommodation accompanied by an upbeat outlook for the second-half recovery. It's no secret that December was tough. The U.S. reported its first month of job losses since April, consumer spending dropped for the third month in a row and jobless claims spiked higher. New virus cases surged across the nation, forcing many states to bring back restrictions, but none of that sapped investor optimism because the ongoing vaccine rollout has made everyone more confident about a second-half recovery. 
Going into the January policy meeting, the question of whether the U.S. dollar is a buy or a sell hinges on two things: Fed Chair Jerome Powell’s recovery outlook and comments on tapering. Over the past month, a number of Fed presidents suggested tapering could begin as early as late 2021 if the recovery is strong enough. If Powell admits to sharing this sentiment, USD/JPY should soar past 104.00 and EUR/USD could break through 1.21.  
In December, Powell provided some important clues on where he stands. At the time, the central bank dialed up expectations for growth and refrained from extending the maturity of asset purchases, which was seen as slightly less dovish. Powell also said the economy should perform strongly in the second half of 2021 thanks to the vaccine, but the central bank would still need to continue buying bonds until there is substantial progress made on its goals. On tapering, he noted the central bank will give “ample warning” before tapering bond purchases.  
While more Americans are getting vaccinated every single day, stocks are near their record highs and President Joe Biden promises more stimulus. Premature taper talk could derail the recovery. There’s no doubt that they’ll discuss this further, but the year has just begun and Powell could wait another month or two before setting the stage for less stimulus. For all of these reasons we think that even if the U.S. dollar rallies on Powell’s positive comments, if he doesn’t add fuel to taper talk, the rally should be seen as an opportunity to sell higher as the dollar will inevitably resume its slide. 
For the second day in a row, the New Zealand dollar was the best-performing currency. In contrast to manufacturing, which contracted sharply in the month of December, the contraction in services eased with the PSI index rising to 49.2 from 46.7. Services led the decline in November and it could now be leading the recovery. We won’t know until next month, but for now, low virus cases, U.S. dollar weakness and good data are contributing to the rally. The Australian and Canadian dollars also moved higher, with AUD/USD likely to extend its gains if tonight’s report shows CPI growth quickening in the fourth quarter. 
GBP/USD closed in on 2.5-year highs following better-than-expected labor data. Thanks to the country’s furlough scheme, there were fewer job losses and strong wage growth. New virus cases are also beginning to fall, which is positive for the country’s prospects. With no data on tap, the euro lagged behind all of the major currencies.
Will U.S. Dollar Rise Or Fall On FOMC?

Related Articles

Jeffrey Halley
Currency Markets Look For Direction By Jeffrey Halley - Nov 24, 2020

Dollar whipsaws against euro, sterling Currency markets were whipsawed last night, with the dollar index trading in a near 80-point range before closing almost unchanged. The...

Will U.S. Dollar Rise Or Fall On FOMC?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email