• The Fed is widely expected to announce it will begin winding down its balance sheet. A rate hike is very unlikely at this meeting, but investors will be looking for hints of a move that could come later this year and the path for further rises in 2018.

    The dollar has edged lower against global currencies as investors stand by for the conclusion of this week’s meetings.

    Asian markets are mostly unchanged on Wednesday as investors awaited monetary policy news coming at the conclusion of the U.S. Federal Reserve’s two-day meeting.
    Print taken at 7:24 a.m. London time.
     And in Europe, a flat open is predicted.
    Print taken at 7:22 a.m.

    Peter Rosenstreich, Head of Market Strategy at Swissquote Bank says markets are too calm and that stocks, bonds and the dollar could well be in for a Fed-related shock.

    Below is a snapshot of his latest analysis:

    “The big news event on 20 September will be the report of the US Federal Reserve’s Open Market Committee – we believe the central bank will finally announce plans to start selling its massive holding of bonds. This is likely to begin in October. Meanwhile, the Fed is unlikely to move interest rates.

  • “What does this mean for the US dollar? Possibly a shock. Markets are calm – too calm, really, like those western films where the sheriff rides into an empty town. Despite the tensions in North Korea and the Middle East, despite a see-sawing US president, despite implied volatility, willingness to take risks is historically unprecedented, which we know could end in tears. Markets continue to rationalize this, by seeing low inflation, solid growth and gradual central bank normalization. We’re not so sure. A balance-sheet unloading could end the ‘feel good’ environment, sending both bond and stock markets southward.

  • “Our base scenario is that markets will fade the Fed announcement, instead pricing in gradual tightening and shallow interest rate cycle. This will keep the USD on weak footing. And it will keep rolling the current uptrend of high-beta currencies.” 

    To discuss this theory, Rosenstreich is on set for Street Signs at 9:00 a.m. London time.