How will Wednesday Fed’s Meeting Impact the markets?

Wednesday will bring decisions of the Fed’s November meeting to the financial markets, and Friday will bring Non-farm Payrolls, so financial markets rre amid some heavy drivers for the USD.

It is expected that this is the rate decision at which the Fed will announce their intentions to begin tapering asset purchases. Several market participants were looking for that announcement at the September rate decision.

Instead, Jerome Powell said that the ‘significant further progress’ that the bank wanted to see hadn’t yet been met on the employment front even though inflation was sticking above 5%.

Powell reiterated that the bank was ready to make that taper announcement soon provided that employment data “didn’t massively disappoint, and global markets largely inferred”, that to mean: November.

The Fed, however, upgraded their economic projections to highlight a potential rate hike in 2022. Since then rates markets have continued to run and are now closer to pricing in a second rate hike for next year.

The expectation for a taper announcement appears to be priced-in at this point, with the focal point now moving to the Fed’s rate hike plans for next year and whether they think they’ll need to usher in a faster pace of hikes to start stemming inflationary pressure.

The US Dollar shot higher on the back of the September rate decision, rushing up to a fresh yearly high and eventually finding resistance at the 38.2% Fibonacci retracement of last year’s selloff.

This led to some ranging price action in early-October, with one more attempt to break out to a fresh high mid-month, only for prices to slide back to trendline support last week, at a spot that was confluent with the 23.6% retracement of the recent topside move.

Considering that a taper announcement already appears to be priced in, the central bank will likely need to warn of faster rate hikes next year to match the moves that have been showing in U. S. rates, and that could bring some further bullish price action into the mix as markets further adjust to the potential for tightening from the Fed.

With no updated projections due at tomorrow’s meeting, if this is to show it will likely emanate from innuendo or hints from Chair Powell.

The Fed has went out of their way to support this equity market run and it seems unlikely that they’d choose right now to all-of-the-sudden pull the rug out from underneath these well-built trends. But once the start of tapering is in the rear view, the focus then moves on to rates and what Powell says on the topic tomorrow will be pored over for hints of a more-hawkish FOMC.

If the US Dollar does put in a bearish reversal, there’s some context to work with that in EUR/USD, where the pair has been brewing a falling wedge formation for the past few months.

The big question here is one of pairs selection; and because the Euro has been pretty weak, it may not be the optimal currency to mesh up with a weak US Dollar, at least in the current context. GBP/USD may be a bit more attractive for similar aims.


While the Fed was fairly lackadaisical towards inflation earlier this year, the BoE has been a bit more active, preparing to hike rates in response with markets expecting earlier hikes out of the Bank of England than the Fed.