rahul.khanna's picture

USD path & expectation ahead of FOMC meeting and Janet Yellen press conference

Slight pause in USD strength ahead of FOMC meeting and Janet Yellen press conference, which will set the tone for US interest rate path & USD. 

Emerging markets have declined since late August against USD. While emerging currencies like RUB, TRL, ZAR, ILS dropped rapidly, Asian Currencies like THB, MYR, & IDR dropped at a more modest pace. We have now seen some consolidation since start of the week, with all above stated currencies slightly up, ILS the only exception.         

(Above table shows return from 18 August to 17 September 2014)

Story is the same for major currencies, but it begun much earlier in July, with EUR, GBP, JPY, CHF AUD, & NZD, all having a poor run. Interestingly they all had their own reasons; with EUR dipping due to lack of growth, GBP fell because of Scottish referendum and so on.

Biggest question remains: What will be the future path of these currencies. Given September is the last month of tapering before QE unwinds in October, we expect some specifics on the interest rate path, doing so, as will be conveyed by Janet Yellen press conference will trigger further rise versus the almost all of the currencies stated above. Whereas, GBP is likely to buck the trend ( atleast in the long run ) as 'No Vote' on Scottish referendum is gathering momentum in final days, and unemployment rate is heading into the right direction. However, soft US CPI earlier on Wednesday may swerve the tide in favor of less hawkish stance and more two way talking, either way USD is likely to head higher, unless Yellen start talking about fragile economy and considerable time frame gibberish.