Commenting on the significant event risk following FOMC decision, Chris Towner, chief economist, HiFX, said:
“This evening we have significant event risk with the FOMC deciding on interest rates. The expectation throughout this year has been for the FOMC to raise interest rates and they have held out right to the last meeting to finally act with a 80+% probability that they will raise rates by 25bps.
“Even though the expectation for a 25bps rate hike is already priced in, there is still significant risk of volatility in reaction to the accompanying statement.
“Just to give you all a sense of what could happen, here are the following potential scenarios.”
– The FOMC do not raise rates: significant downside risk to the US dollar of 4%
– The FOMC raise rates by only 10-15bps: significant downside risk to the US dollar of 3%
– The FOMC raise rates but are dovish in terms of the outlook for interest rates: downside risk to the US dollar of 1-2%
– The FOMC raise rates and are hawkish by mentioning future rate hikes: upside