USD: All eyes on US election after Fed holds fire - BTMU

Analysts from The Bank of Tokyo-Mitsubishi UFJ point out that after the FOMC decision, attention now will turn to the US presidential elections.

Key Quotes:

“The US dollar has weakened modestly following the Fed’s decision to leave policy unchanged which has prompted some initial relief. Still the Fed has signalled strongly that it moving closer to resuming rate hikes in the near-term which remains dependent on the incoming economic data.”

“Economic data releases in the week ahead are unlikely to materially alter market expectations for a Fed rate hike by year end having little impact on US dollar direction. Of more interest will be comments from a number of Fed officials although the underlying message is likely to be similar to that from the policy meeting. The Fed’s continued caution towards raising rates even as it judges that the US economy has picked up and risks are now balanced reinforces the market’s scepticism over their desire to tighten policy as planned.”

“With the market already pricing very little Fed tightening in the coming years, the scope for further US dollar weakness in the near-term should prove modest. A more material weakening of the US dollar would require evidence of building public support for Donald Trump in opinion polls particularly in key swing states ahead of the Presidential election. The first Presidential debate between Donald Trump and Hillary Clinton will take place on Monday.”