This article was written by Dwayne Buzzell, a financial analyst with more than two years experience in forex trading and private investing.
The rate hike decision in the month of September was postponed by the Fed at the last FOMC meeting.
All major economic data for the US economy came in negative which caused the delay of the rate hike this month.
The average hourly income of the US dollar and unemployment data also came in very poorly which caused the mighty dollar to slip lower against its all major rivals.
Despite the Fed’s dovish statement there remains a small chance of an interest rate hike in the month of December. This small chance has gripped the dollar from the fall, accompanied by a hawkish hold. Many traders are still hopeful of a rate hike in the month of December.
The dollar is now at saturation level with the possibility of rate hike almost nil in this year. Currently, the greenback is the only currency whose rate hike decision has been held back by its central bank. This has made the dollar pretty weak in the eyes of short-term investors since they like to buy the rally in its weakness.
Though the weakness of the US dollar is very much prominent in the market, traders are well aware of the fact that the Fed might hike the interest rate in the month of December.
If the average hourly income and unemployment data goes green for two consecutive months then there is a strong possibility of a rate hike in the month of December. However, if the rate drama continues at such a pace we can expect crazy volatility and unexpected behavior in the forex market. The market needs clear and precise data to settle down and become a fertile field for the trader.
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There has been a strong bullish rally in the yen pair followed by the relative inaction of the Bank of Japan. The USD/JPY traded lower all week despite a handful of Japanese economic data releases. Last week was very significant for yen and dollar investors since the Fed FOMC meeting and BoJ monetary policy meetings took place.
The Fed decided to keep its interest rate unchanged whereas the BoJ made some changes in its monetary policy. This significantly made the yen stronger against all its major rivals and investors are expecting a strong upward rally in the yen in the coming days.
The BoJ is even ready to initiate a QQE policy to adjust the value of its currency for the next quarter year. The recent monetary meeting made a significant impact on the stock and forex market due to two major changes. Haruhiko Kuroda decided to keep the inflation rate above 2.0 percent and was ready to initiate the 10 year Japanese Bond Yield program.
Pushing the inflation rate higher has very little impact on the forex market but has a lasting effect on the stock market. Investors are in fear of the next possible yen move and hence like to stay on the sidelines and give time to the market to absorb the impact.
Most commodity prices went up more than 2 percent. Precious metals, like platinum, recovered 7 week losses with an increment of 3.3 percent in its price. The vigorous reaction of the sensitive stock and precious metal market is due to the cautious thinking of investors regarding the rate hike decision.
The gold price also went up by 0.03 percent at $1337.01 an ounce after the FOMC meeting. The high was reached near 2:57 PM EDT which tested the two-week high price at $1342.64 adding a more than 2 percent increase in the gold price. But the price of gold settled down at 0.2 percent at $1341.70 per ounce.
To be precise, gold seems to have gained some bullish power after the dovish statement of the Fed. According to Georgette Boele, pushing gold higher is risky since there is a good chance that the US economy will recover its losses within two months which will ultimately give the Fed strong reason to hike its interest rate in the month of September.
The stock market also reacted violently to the Fed’s dovish statement. The market rallied strongly. According to professional traders, the dollar was thrown into the basket against all its major rivals which allowed the stock price to shoot up. The price of silver was declining sharply in the last couple of weeks. Before the rate hike decision, silver was down by 1.2 percent at $19.60 an ounce. But the dovish statement by the FED shot the price 4.4 percent higher, targeting the July 1 high.
There has been a 1.3 percent rise in the price of palladium which ended up with 4.6 percent by the end of the week. The bullish rally of palladium was the most prominent and most likely to continue in the near future. However, platinum was down 0.4 percent at $1,047.50 an ounce. But the news helped it to gain a 3.3 percent rise after seven weeks of consecutive losses.