"USD will probably weakens in the wake of FOMC meeting" Kathy Lien

This week's two-day Federal Reserve meeting will likely usher in volatility for the U.S. dollar, which will ultimately fall further from current levels against rival currencies, one foreign exchange strategist said Monday.

The most important feature of the meeting will not be so much how the Federal Reserve plans to unwind its massive balance sheet, as that is widely expected from the Federal Open Market Committee, but the guidance Fed Chair Janet Yellen and the central bank can give about its plan for the federal funds rate.

"Unfortunately, there's not much in the way of guidance that she can provide, because the Federal Reserve themselves are kind of confused and uncertain about when to raise interest rates, and where the U.S. economy is headed," said Kathy Lien, managing director of foreign exchange strategy for BK Asset Management.

For investors, Lien said perhaps selling the dollar into the meeting or on the back of the FOMC rates decision would be a smart move. Hawkish rhetoric from the Federal Reserve is often seen as a positive factor for the greenback since higher rates make it more attractive to hold dollars.

"I particularly like selling the U.S. dollar and buying euros," she said. "Unlike the Fed, which is more likely to sound a little bit more wishy-washy ... the European Central Bank has been very clear about tapering asset purchases, or announcing that tapering, next month. So I think that's going to provide underlying support for the euro, and I think the best way to express U.S. dollar weakness would probably be to buy euros."

The likelihood that the central bank will announce a rate hike in December has recently increased, a recent Bank of America Merrill Lynch report said.

Source: Bloomberg Pro Terminal

Trader Bozhidar Arabadzhiev

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