March FOMC preview: Will the Fed confirm market fears?

Key points

• The Federal Reserve will meet tomorrow, March 19th at 2:00pm EST to set overnight interest rates
• No change in rates is expected at this meeting
• Futures markets are pricing in a 66% likelihood of a cut in June
• Futures markets are pricing in approximately 50-75bps of rate cuts this year
• The US dollar has weakened with Treasury yields and recession fears in recent trade

What to expect at tomorrow's FOMC

The Federal Reserve convenes tomorrow, March 19th at 2 PM EST, with widespread expectations of no change to the target overnight rate, currently at 5.25-5.50%. With this decision virtually certain, the focus at 2PM will be on the Fed's updated projections in the quarterly dot plot and any language changes regarding the economy that signal either a more stable or concerning outlook. If these releases contain no surprises, markets will likely fluctuate until Fed Chair Powell's press conference at 2:30PM EST. US investors hope one of these statements will provide a dovish signal—either interest rate relief in the near future or reassurance that the economy continues growing at a stable pace.

Will the Fed match market sentiment?

The Fed's Summary of Economic Projections will update where each Fed member expects interest rates to be at year-end for the next few years. This update is heavily anticipated as it could contain substantial changes from the December release. Since December, futures markets have shifted from pricing in one 25bps rate cut for 2025 to as many as 125bps of cuts during the same period. Currently, CME prices indicate sentiment centered around 50-75bps of cuts in 2025, with the first cut expected in June.

If the Fed maintains their December projections, Treasury yields and the US dollar could return to where they started the year. Conversely, if the Fed confirms current market pricing, we could see renewed confidence in the trend, with Treasury yields and dollar prices falling further. Equity markets might react positively or negatively to more cuts, depending on the Fed's confidence in avoiding a recession.

It's worth noting that these two indicators—FOMC projections and futures prices—have diverged before, and investors might disregard the Fed's guidance regardless of its content.

US dollar hits new lows in anticipation

While the interest rate landscape is only one piece of the US dollar puzzle right now—with trade negotiations and geopolitical conflicts taking much of the spotlight—the US dollar enters this week at a new 5-month low against the euro, with EUR/USD trading above 1.0950 early this week. EUR/USD remains susceptible to volatility around this meeting, though traders looking to trade this event with less geopolitical risk could turn to USD/JPY, which has exhibited a strong correlation to US rates in recent months. USD/JPY has bounced off its 5-month low from earlier this month as 10-year Treasury yields have leveled out this week. A resurgence in Treasury movement in either direction will likely transmit directly into USD/JPY.

What do rate cuts mean for US dollar?

Typically, lower interest rates reduce the return on holding the US dollar, potentially decreasing its demand and value. However, the impact on the USD depends on relative rate actions by other central banks. If other regions enact similar rate cuts, the USD's relative strength might be preserved. Any unexpected shifts in the Fed's rate strategy, potentially hinted at in Powell's upcoming remarks, could trigger significant fluctuations in USD valuations.

Another factor in the cutting cycle's impact on the dollar is overall sentiment toward the US economy. If the Fed cuts rates preemptively while the economy continues growing, the dollar could maintain support. If the Fed must cut more aggressively to prevent a recession, the USD could face diminished demand as investors move to other safe-haven currencies like the yen and Swiss franc.

How to trade US dollar

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open, monitor, and close positions on USD pairs

Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.