FOMC Preview: How has the U.S. Economy Changed Since Last Fed Meeting?

Last updated 6/23/2009 4:07 PM ET (GMT -5) 4 Comments

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Kathy Lien

Director of Currency Research, GFT

The U.S. dollar is trading lower ahead of the Federal Reserve’s interest rate decision. There is no question that the U.S. economy has improved since the last meeting. The housing market has stabilized, the equity markets are higher and the pace of job losses has slowed, bolstering consumer confidence.  There are of course still areas of weakness as the recovery remains fragile. The unemployment rate climbed to a quarter century high while oil and gas prices tick higher. Inflationary pressures are nonexistent and the economy is getting better so there are no major reasons for the Fed to change the size and scope of their asset purchase program. However the FOMC statement could still impact the EUR/USD because if the central bank stresses the improvements in the economy over the need for an extended period of easy monetary policy, we could see risk appetite drive the EUR/USD higher. If they stress the risks to the recovery and the need for interest rates to remain low over the improvements in the economy, the EUR/USD could give back its gains. 

The following chart illustrates how the U.S. economy has changed since the last Fed meeting:

Comments (4)

St_Fx

June 23, 2009 at 05:02 PM ET

Hi Kathy,
A basic question i want to ask, we saw past some months possitive US date is lift eur, gbp, aus, up and chf, cad, down. Any better than expected or pevious US data hit the dollar and strong the other, why its happen is their any fundamental ression that i m not understand or current happening not much more technical moves or retracements of huge decline in the majors that should be cover its looses or any other things. Thanks.

klien

June 23, 2009 at 05:08 PM ET

It really boils down to risk appetite. Right now stronger risk appetite has been synonymous with dollar weakness and vice versa. This stems from alot of flight to safety flows into U.S. dollars over the past few year.

djrobert

June 24, 2009 at 06:35 AM ET

Hi Kathy,
Just a quick question regarding the possible outcomes for the FOMC today. You seem to indicate that if the Fed is dovish and hints at keeping rates lower for longer then this should be negative for the EUR. Shouldn't this be more negative for the dollar because of the fact that returns in the US will be lower for longer?

klien

June 24, 2009 at 11:44 AM ET

If they focus more on the risks to the economy and the need to keep monetary policy ultra easy for a long time, it would suggest that the Fed knows something that we don't and the economic outlook is worse than the market's belief, which would be risk negative.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.