FX: Dollar loses ground ahead of FOMC decision

By Jameel Ahmad, Chief Market Analyst for FXTM

The doctor seems to have prescribed an extreme dose of volatility to the financial markets, with no signs of this easing as we head into Christmas. The pressure we have been noticing in global stocks this week (as a likely reaction to the lower oil prices) is weighing on the USD, with the major currency weakening against the Euro, UK Sterling, Swiss Franc, Japanese Yen, Canadian Loonie, Australian Dollar and Kiwi Dollar yesterday. Some USD weakness was expected this week with the equity markets facing so much pressure, but part of the softness on Tuesday could also be attributed to nervousness among investors ahead of the conclusion of tonight’s FOMC meeting.
Ahead of the FOMC statement, there is a growing anxiety that the Federal Reserve may display some concern with the free-falling oil markets and perhaps indicate it will postpone raising interest rates. Although we can expect the Federal Reserve to re-emphasise that a potential inflation decline is something that it is watching very closely and fears over low inflation levels would likely have heightened following the PPI decline, we do not expect the Federal Reserve to postpone raising interest rates.
There was previously so much unrealistic optimism that the Fed would raise rates as soon as March and now this has passed, but the Fed have indicated it will raise rates between the middle and end of next year and we expect them to follow through with this.
www.forextime.com