Look Forward At The Foreign Exchange Market

The Federal Open Market Committee  meeting minutes failed to surprise the market. The statement simply re-confirmed that it was unlikely that they would increase interest rates this year with rates likely to remain low for a “considerable time” after it ends large scale asset purchases.

However the interesting point to note was that they forward revised their timescale for tapering to end. Federal Reserve officials indicated instead that the monthly bond-buying program could end sooner rather than later—with an October exit growing increasingly likely. This is a positive step for the US economy and for the dollar and even though a rate increase is a way off yet, we are certainly moving closer to it. Analysts have now bought forward their forecasts for the first rate rise to be around next March rather than June.

So as a Forex trader we can expect dollar weakness to continue for the near term, mainly against the strong currencies. We will however want to have an eye on the mid to long term picture when the dollar will inevitably start to strengthen. This is especially true if the data from the US outperforms. In this case we would look to then take advantage of and trade the strengthening dollar against the weaker currencies.