Dollar Drops Further Ahead of Fed Policy Meeting


The dollar index, which measures the greenback against a basket of major currencies, extended losses falling to 90.40, its lowest level since 2018, as investors await the Federal Reserve monetary policy meeting outcome and the developments of fiscal stimulus talks. The Fed kicked-off a two-day meeting yesterday to review its monetary policy. The question remains whether the Federal Reserve will act now, following the alarming economic indicators among them the latest jobs report and initial jobless claims. The Fed can expand the size of its asset purchases, focus on longer-term maturities but keep the same amount, or move to an outcome-based module. In another scenario, the Fed can adopt a wait-and-see mode for this meeting and push Congress for more work. The US policymakers continued negotiating the coronavirus relief bill, with Pelosi and McConnel declaring progress. The EURUSD rallied to $1.2165, and the GBPUSD rose to $1.3470.


Futures tied to major US stock indices raced higher as investors await the deal on the latest relief bill. House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnel stated that they are having progress on the package and that today they could get the job done. Moreover, investors are awaiting the Fed's forward guidance on its asset purchases, and the economic projections. The Dow Jones Industrial Average futures rose to 30212, the S&P500 futures advanced to 3695, and Nasdaq futures edged higher to 12621.


Precious metals prices marched higher as the dollar weakened ahead of Fed's policy meeting. The price of a gold ounce rallied to $1858, the price of a silver ounce rose to $24.78, and palladium futures inched higher to $2344.


Oil prices inched higher, supported by optimism over stimulus. The energy market is disregarding the possible lockdowns and rallying on optimism that the vaccine will restore oil-demand levels, and fiscal stimulus will boost the economic activity. The West Texas Intermediate crude January delivery rose to 47.72, and Brent Blend February delivery rallied to $50.86. Market participants are looking forward to the weekly oil report by the US Energy Information Administration later today.

Major Economic Events

GMT Country Event Expectation Previous
9:00 EZ  Manufacturing PMI (Dec)   53.0 53.8
9:00 EZ Services PMI (Dec)  41.0 41.7
9:30 UK  Manufacturing PMI (Dec)   - 55.6
9:30 UK Services PMI (Dec)  50.5 47.6
13:30 US  Retail Sales (MoM) (Nov) -0.3% 0.3%
13:30 CA  CPI (MoM) (Nov) 0.2% 0.4%
14:45 US  Manufacturing PMI (Dec)  55.8 56.7
14:45 US  Services PMI (Dec)  55.0 58.4
15:30 US  Crude Oil Inventories -1.424 15.189
19:00 US Fed Interest Rate Decision 0.25% 0.25%
19:30 US  FOMC Press Conference  - -
21:45 NZ  GDP (QoQ) (Q3) 13.5% -12.2%


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