Fed on hold, UK election in focus

CMC Markets

As widely expected, The Fed left its policy rate unchanged at 1.50-1.75% in a FOMC meeting last night, stating that the current policy stance is appropriate.

Barring any material change in the fundamental picture, the Fed is likely to stay on hold through 2020, while also open to the possibility of buying short-term coupon-bearing securities to ease money market strain.

Fed Chairman Jerome Powell described the US economic outlook as ‘a favourable one despite global developments and ongoing risks’.

A well-communicated FOMC helped to paint a clearer picture of the US monetary policy and removed uncertainty in terms of policy risk. Dollar index fell to its lowest level seen since 4th November sending EUR and GBP higher.

Today, currency traders will hold their breath for the UK general election, in which Brexit will be at the heart of the vote. The pro-business Conservative party remains in the lead in the opinion polls, which explained the strengthening in sterling recently. Volatility in sterling and euro pairs is likely to pick up around the time of the election result release at 10pm UK time. 

In the event of a black-swan election result, sterling is likely to give up recent gain and suffer heavy selloff as traders unwind their positions and stop losses get triggered. However, the likelihood for that to happen remains very low.

Some FX brokers have increased margins and the minimum distance of Guaranteed Stop Loss Orders as part of their risk management controls for specific currency pairs ahead of the UK election The memory of huge forex volatility back to the 2016 EU referendum remains fresh for forex traders and brokers, therefore everybody will be holding their breath this time.