
By Kathy Lien (www.gftforex.com)
The Federal Reserve is currently holding a two day monetary policy meeting and it will be interesting to see whether they are desperate enough to introduce radical programs that can incite the enthusiasm of investors. With interest rates virtually at zero, a rate cut is not expected, but the central bank is under pressure to take further action. So far, their effort which includes 500bp of easing has helped to prevent the recession from turning into a depression but it has yet to stabilize the economy. The latest string of economic data indicates that the US economy is still on a downtrend and headed lower. The FOMC rate decision tomorrow could be a nonevent for the US dollar, but if the Federal Reserve is desperate enough, they still have the power to surprise the markets.
FOMC Rate Decision - 2 Analogies
There are two analogies that can help us understand the potential outcome for tomorrow’s rate decision. The Federal Reserve’s current position is similar to their situation in 2003, when interest rates were lower to 1 percent. At that time, rates were not expected to break the 1 percent level and the central bank made it known that their easing cycle had come to an end. From there on forward, until the market started speculating about the possibility of a rate hike, traders started to become indifferent to the Fed’s rate decisions since no changes were expected from the central bank. No changes are expected this time around so there may not be the same type of volatility that we have seen with past rate decisions. The second analogy is the Bank of Japan rate decision which investors hardly bat an eye at. For the FOMC meeting to matter, we will need to see acts of desperation from the Federal Reserve. Read our full FOMC Preview and see charts of previous FOMC price action at FX360.com.
AUD/USD: Currency in Play for Next 24 Hours

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