"FOMC may be a bit of write-off but there are risks of some dovish language tweaks"
- Sean Callow, Senior Currency Strategist at Westpac Bank
With U.S. Dollar slipping towards a nine-month low against a basket of major currencies on Monday and fluctuating around two-year low versus the single currency, the greenback is likely to remain under pressure on expectations the Federal Reserve will provide some dovish comments amid recent political disputes and 16-day long government shutdown. Despite some technical signals that EUR/USD may consolidate for some time the latest polls are showing that 52% of respondents are expecting weak U.S. Dollar this week. It seems that financial markets have already priced in the possibility the Fed will start withdrawing its stimulus programme not earlier than in March. Moreover, the majority of analysts suggest October FOMC meeting will not move markets meaningfully; however, some of them do not exclude a possibility of a potential surprise.
The current stimulus programme also known as QE3, could become the largest bond-buying programme so far. The latest government shutdown and debt ceiling debate may force the Fed creating a weaker economic outlook and providing some dovish comments. In case QE will last until at least March 2014, it would total around $1.6 trillion, compared with previous two stimulus programmes of $1.5 trillion and $600 billion. At the same time, since the Fed has launched its QE in September 2012, the central bank has amassed almost $800 billion, while the currency circulating within the economy has increased by only $80 billion.
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