U.S. and U.K. Central Bank Decisions


Central Bank DecisionsWe have now arrived at the business end of this week, with yesterday’s FOMC decisions and guidance followed by today’s monthly input from the Bank of England bringing the U.S. Dollar and British Pound into focus.

Let’s start with yesterday’s FOMC, which left rates unchanged and produced nothing of real note except one thing – its statement twice noted that inflation continued to run under target, at an annualized rate of 1.5% which is below the target rate of 2%. This language was strong enough to be interpreted as a more dovish tilt from the Fed, which then knocked the U.S. Dollar initially as the support of anticipated future rate hikes was presumed to be reduced. Stock markets also fell, although that was probably caused primarily by other economic data which suggested that although the economy is still growing solidly, growth is certainly slowing.

Strangely, the U.S. Dollar Index actually rose quickly, and has held up following the FOMC release, which suggests that the market is not as impressed by the apparently dovish tilt as the news writers! When prices don’t move the way the news “should” move them, this is a sign that either it is just not very important or that something else is going on. Although it has slowed in recent weeks, the U.S. Dollar is in a long-term upwards trend, and we just don’t have anything yet which is strong enough to truly reverse that.

As for the Bank of England, rates were left unchanged and no real surprises emerged. The British Pound has maintained a 60-pip range against the U.S. Dollar all day, up to two hours after the Bank’s release, which is quite low.

If all this sounds quite disappointing for Forex traders looking for action, there is one last hope for the week: tomorrow’s non-farm payrolls and other important U.S. economic data releases. This used to be the prime driver of the Forex market until a few years ago when this event was knocked off its throne by the FOMC central bank input. However, a surprise in employment data still has the capacity to trigger a big move on the last trading day of the week.

Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment.