For traders, the presence of the FOMC is always eagerly awaited. Because at this fundamental event will have a big impact on market participants such as speculators, investors, hedge fund managers, and of course traders.
What is FOMC?
Federal Open Market Committee or often abbreviated as FOMC is a collection of Fed officials (US central banks) who are elected to have a say in determining US monetary policy. FOMC members consist of permanent members with the position of the current chairman of the Fed and 4 governing boards as permanent members. While some chairmen from the Fed region were appointed as temporary member positions.
The Federal Open Market Committee usually holds 8 meetings a year. In the forum they discussed the economic and financial conditions of the US, as well as voting to determine the direction of the central bank’s monetary policy. The policies made in this forum are arranged in such a way as to have an impact on the wider community. FOMC voting results determine the increase or decrease in interest rates, mining, reducing, and ending the stimulus. Monetary stimulus is usually done by buying government securities.
The timing of this FOMC implementation is uncertain. Depending on market conditions or member decisions. To determine a conclusion, FMOC chose two terms, hawkish and dovish. Hawkish is an FOMC action that supports tightening monetary policy such as rising interest rates or stumulus withdrawals and reductions. Meanwhile, dovish is a decision of the FOMC that is inclined to easing menoter, such as lowering interest rates, making or adding stimulus.
Important influence of the FOMC
Why does the FOMC have an important influence on the US economy? This is because at the FOMC meeting will have an impact on monetary policy that has a major influence on the wheels of the US economy. Investors and market participants will usually always observe FOMC decisions that have a major influence on the world currency. When the FOMC attempts to park or reduce the USD exchange rate, other currencies and assets will be affected. As a result, there is a domino effect in the investment market.
If the Federal Open Market Committee is hawkish in tone, the USD usually strengthens and market sentiment towards the currency will tend to be bullish. This means that other currencies dealing with USD in one pair will experience a weakening. For example, when USD / JPY and USD / CAD surged, EUR / USD and GBP / USD actually dropped. However, if the hawkish steps of the Federal Open Market Committee are projected, then the strengthening of the US Dollar is usually more limited.
However, the value of the USD may decrease when voting on the FOMC. If that happens it states a dovish gesture. The decline can be even more sharp when the Federal Open Market Committee steps into a market unpredictable surprise. But if the analysts have seen this possibility before, then the USD may not decline too far, or even have the potential to strengthen even if only slightly due to profit taking.