And they are saying that it's going to be a dovish Fed
US dollar performance vs major currencies this week
The greenback is the major laggard in the currencies space over the past two days so far with exception to the loonie. But that is more of a special case scenario as the loonie suffered heavily as oil prices dipped below $50 overnight.
In general, there is an ongoing theme right now in the currencies market and that is to sell the dollar ahead of the FOMC meeting decision tomorrow. At this point, a rate hike is very much a given already and if the Fed decides not to hike, it's still a bearish point for the dollar.
And even as they do hike - which they are expected to anyway - markets are fearing that the Fed is going to err on the dovish side and they have plenty of reasons to do so. As though recent Fedspeak language isn't already a hint, the Fed is likely to reiterate talks of reaching close to neutral rates and could possibly slow down the pace of the tightening cycle. Yet again, another bearish point for the dollar.
Adding to that, there is also worries on yield curve inversion, slowdown in the global economy, and the drop in oil prices causing inflationary pressures to weaken. If anything, it supports a more cautious approach rather than a presumed hike at every other meeting; more so considering neutral rate talks again. Hence, that's a possible bearish point for the dollar but if not, it's just status quo.
At this point, the Fed isn't left with much but they could just stick it out in the last meeting of the year and reiterate a similar message/forward guidance before shaking things up next year. That would be particularly surprising considering their recent tone but then again, when Trump is saying stuff like this, you sort of get the feeling that Fed members would want to not appear to be bowing down to his wishes. After all, the Fed values its independence rather highly.
That's the only argument in which I see the Fed keeping with the current rhetoric. Otherwise, the odds are mounting that they're gonna release the doves tomorrow. And that's not good news for the dollar.
