Dollar Strength Giver: The FOMC Statement

• By Dave Goodboy
• On 1:34 pm EST, Tuesday November 3, 2009

David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.

The Event:

At 2:15 PM EST, Wednesday, November 4th, the Federal Open Market Committee (FOMC) announces their rate decision and statement regarding what occurred at the 2 day meeting happening right now.

Description:

Interest rates are the primary tool Central Banks use to control the economy. Rates are lowered to spur growth and increased to slow economic expansion. The actual rate decision is often widely anticipated so it's generally a non event. However, the simultaneous release of the rate statement is what moves the FX market. In this statement, the Fed often lets known its sentiment for future monetary changes and the whys for current policy. Hints and subtle clues are scrutinized by the major players in currency trading as they scramble to realign positions with the current Fed sentiment.

Trader Take:

It is highly unlikely that the Fed will change interest rates despite the injured U.S. Dollar. The primary job right now is to restore bank credit regardless of the damage done to the USD. Any perceived tightening of credit will be met with a quick end to the recovery, therefore the Fed needs to do all it can to temper these fears. The USD has strengthened over the last several days in what appears to be a response to the tumbling stock market. The old risk sentiment plays seem to be at work here. Listen closely to the FOMC statement, market moving hints may be provided!!

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Buzz up!