Investors Turn Euphoric Ahead of FOMC Decision
26 January 2022
Yesterday's negative sentiment was quickly forgotten, with risk assets rising sharply today in anticipation of a dovish tilt in today's FOMC decision.
The Nasdaq 100 index has completely erased Tuesday's losses and was more than 3% higher during the EU session, jumping above 14,400 USD. The SP500 was up more than 2%, while EU bourses traded notably stronger.
The Fed delivers the decision on monetary policy today. There should not be any changes, and the central bank will likely confirm that the lift-off will begin in March. However, the discussion regarding the balance sheet reduction will be crucial.
Considering the recent rout in sentiment and stock markets, the Fed might include a slight dovish tilt there - to announce that it will start reducing the balance sheet, but not as soon as the hawks had expected.
Additionally, the Bank of Canada will also deliver its monetary policy decision. Canadian olicymakers attempt to balance robust data on employment and inflation from Q4 versus the sharp increase in COVID infections and subsequent lockdowns in late December and January,
Market expectations are split 50/50; the USDCAD will likely be volatile if the central bank delivers the first rate hike since 2018.
Elsewhere, US yields continue upward, somewhat boosting the USD. However, the bullish momentum in the USD remains fragile as the EURUSD pair has failed to decline significantly below last year's lows at 1.12.
Oil does not care about anything and remains on its path toward the psychological 100 USD threshold, trading above 86 USD during the London session.