One day later than usual, due to the US elections, the Federal Reserve of the United States (Fed) decided to leave the monetary policy unchanged. As such, the federal funds rate remains below 0.25%, and the Fed also decided to leave the asset purchases unchanged too.
The decision was highly anticipated by financial markets. In a week dominated by political headlines, the Fed could not make important policy changes. Because of no change in the policy, the actual statement did not have any impact on the fate of the US dollar.
Up to the FOMC Statement, the USD traded with an offered tone. The negative correlation with the US stock market continued throughout the day, with the EURUSD, AUDUSD, GBPUSD gaining over a hundred pips as the stocks continued to rise. By the time the press conference started, thirty minutes after the statement, the markets were at the highs.
What Did Powell Say at the Press Conference?
To start with, he did mention that the economy improved significantly. Moreover, he added that the fiscal help would continue from where the monetary policy ends. In other words, it hinted towards more fiscal help from the government, and that is the focus after the outcome of the election is known.
Uncertainty reigns, and that is a big unknown for the Fed. The committee did discuss the asset purchases at this meeting, and Powell said that the analysis of the asset purchases was the main goal. The Fed did not consider slowing the pace of the quantitative easing program (currently at $120 billion/month), and it finds the recent rise in the coronavirus cases concerning. It seemed like a copy/paste of the last meeting when the Fed reiterated that the economy would have a strong recovery should more fiscal support arrives.
All in all, nothing new from the Fed, as expected, despite the fact that some voices called for action. However, the Fed literally had its hands tight at this meeting as the monetary policy, for once, comes in second place in importance.
The markets were unchanged during the Fed. By the time Powell was done, some fifty minutes later, the EURUSD traded 1.1825, GBPUSD held at 1.3133 and AUDUSD was at 0.7271. As for the stock market, the Dow Jones index traded around 28.4k by the time the press conference ended, more or less the same level as when it started.
Moving into today’s NFP report, it could very well be that we will have a similar market reaction. Economic data takes a step back until the election uncertainty goes away.