Market Overview

The primary intrigue of the Federal Reserve (the Fed) meeting this week is whether the U.S. monetary regulator would manifest perseverance in earlier declared loose monetary policy. Many external factors prompt this policy should be at least tighter than at the moment: inflation growth exceeding Fed’s projections, increasing employment, forecasts over unprecedented economy growth in the United States, additional fiscal stimulus measures from Joe Biden’s Administration. These factors are raising questions over tapering ultra-soft monetary policy earlier than 2023 that was declared be the Fed before.

However, Fed’s Chair Jerome Powell has repeatedly reiterated that monetary regulator can wait for a long time for higher inflation over the target of 2% that was abandoned last year as an upper limit. The Fed could even consider risks of economic overheat in this regard. Fed’s patience a largely come from fears over uneven decrease of the pandemic in different countries. A recent spike in infections in Japan and India is another confirmation that such assumptions could be quite serious.

The market assumes that dovish monetary policy maybe continued, but also notes of hawkish approach might be added. Those assumptions may curd the U.S. Dollar index movements while it is resting mostly on the same readings close to 91 points this week.

Federal open market committee (FOMC) meeting today may nudge the Dollar in either direction while the Greenback is moving in the downward trend. Technical picture suggests that the Dollar index may decline further to 89.2-89.9 points. Any hawkish rhetoric from the Fed may drive the index to 92-93 points while it still continues to move in a downward trend. This trend would be abandoned only if the index breaks through 94.2-94.4 points. However, it seems highly unlikely as the European Central bank and some other major central bankers keep their ultra-soft monetary policy in place.

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