Sunday, August 7, 2011

Investors Will Be Eying the FOMC Meeting This Week

The Federal Open Market Committee rate decision on August 9 is the most important economic event of the week.
 It is anticipated that the Fed Funds rate will be kept unchanged between 0.00 and 0.25 percent. What will be important with this event, will be Federal Reserve Chairman Ben Bernanke’s commentary addressing the economic slowdown and possible stimulus for growth. This is especially key following the recent string of economic data in July as well as the equity crash late this week. Major areas for concern continue to include a weak job market and a recent stagnation in the manufacturing sector.
NonFarm Payroll data has been disappointing since May, despite July’s print today, and the July ISM manufacturing index reading of 50.9 marked the slowest pace of expansion for the services sector since February 2010.
GDP growth for the first quarter was revised downwards to an almost no growth at 0.4 percent. A measure of stimulus that has stirred much debate recently has been the possibility of QE3. Even though Bernanke’s testimony at Congress in mid-July suggested there will be no QE3.
Any comments by Bernanke that hints towards a new round of quantitative easing will certainly be market moving. This could cause a further sinking the Dollar and spur investors into  a rally towards risk.
Posted by David Frank - Chief Analyst, AvaFX