Should We Trade The Fed Rate Decision?

This week is shaping up to be an important time for the currency markets with the release of the Latest interest rate decision form the US Federal Reserve due out on Wednesday followed by an all-important monetary statement.

The question is not whether they will raise interest rates from 0.50 percent to 0.75 percent (the market is already predicting a 100 percent chance that they will) but whether they plan any future rate rises in the nearest future.

With a certain rate hike on the cards, many are positioned to cash in on the deal immediately after the announcement but as history shows things don’t always go quite so smoothly and markets don’t always act as we would like them to,
“The market has already priced in a rate hike and some are ready to take profits after confirming the result,” said Masashi Oda, general manager of strategic investment department at Sumitomo Mitsui Trust Asset Management.

If we look back to when Donald Trump was elected president of the United States we have a case study on just how gold behaved after the unexpected result.
Nearly all analysts, and the market as a whole for that matter had predicted gold to reach as high as $1.400 in the unlikely event of a win but as I write this article gold is trading at around $1,160, completely going against all forecasts.

The speed with which gold reversed downward after a brief run upwards after Trump was elected caught many traders by surprise and I’m sure there were many investors out of pocket on that day.
With such risks involved it may be better to wait for the following monetary policy statement from the Fed on Wednesday for signs on what they plan to do and especially with regards to future rate hikes.

For holders of long positions in the US dollar this may be a safer strategy rather than trade news that the market has already factored in.

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