The currency markets will closely follow the US Federal Reserve's decisions on monetary policy, which include the interest rate decision, the interest rate statement, and then the US Federal Reserve's economic outlook. This will be followed by the bank governor's press conference to comment on the decisions, which will have a strong impact on the movements of the US dollar and some other commodities such as gold, in addition to the US stock market and digital currency markets. Below is an overview of the circumstances of this decision and how it affects the markets:

First: Economic conditions and their impact on the US Federal Reserve's decisions

Since the US Federal Reserve meeting last July, where the interest rate was raised by about 75 basis points, many important economic data have appeared, which had a strong impact on the movements of the US dollar, major currencies, and various markets, supporting the continuation of the US Federal Reserve speeding up the pace of interest rate hikes this month, especially the strong inflation data which is still near its highest level since 1981.

Looking at that data, we find that the US inflation index fell to 8.3% at the end of last August, higher than market expectations that it would drop to 8.1%. However, it was lower than the previous reading, which showed growth of 8.5% during last July.

At the same time, US labor market data showed strong improvement, with the change in agricultural employment rising by 315,000 jobs, better than market expectations which indicated an increase of about 295,000 jobs only. Meanwhile, US unemployment rates rose to 3.7%, higher than market expectations which indicated stability near 3.5% only.

Therefore, these recent economic data show continued improvement in labor market conditions and continued high US inflation, which will increase pressure on the US Federal Reserve to continue accelerating the pace of monetary tightening in the coming period so the bank can curb extremely high inflation rates, enhancing the chances of raising the interest rate by about 100 basis points at this meeting.

Second: Statements from US Federal Reserve members regarding interest rates:

In the past period, many members of the US Federal Reserve spoke about accelerating the pace of monetary tightening to control high inflation, especially with the continued improvement in labor market conditions and its resistance to strong damage from interest rate hikes during past meetings.

In this context, US Federal Reserve Governor Jerome Powell confirmed during the Jackson Hole forum that the Fed is ready to do its utmost and use necessary tools to control high inflation, which confirms the Fed's continuation in accelerating the pace of interest rate hikes.

At the same time, Federal Reserve member Evans previously stated that inflation is high and labor market conditions are very strong, and that labor market conditions may see some slowing, in addition to the Fed raising interest rates at a very rapid pace, and that they will achieve their mission when inflation returns to the targeted 2%.

Third: Major banks' expectations for the US Federal Reserve decisions:

Some global banks and financial institutions see that the US Federal Reserve may raise interest rates by about 0.75% only and await more economic data in the coming period, including TDS Bank, NAB, Swedbank, Danske Bank, Commerzbank, Westpac Bank, Goldman Sachs, Nordea Bank, ING Bank, Société Générale Bank, Rabobank, ANZ, CIBC Bank, Citi Bank, and Wells Fargo Bank, who believe the Fed will raise rates by about 0.75% only. Others see that the Fed will raise interest rates by around 1.00%, in an attempt to curb high inflation, including these institutions like Nomura.

Fourth: The expected scenario for the upcoming US Federal Reserve decisions:

There are more than one scenario for the US Federal Reserve decisions: the first is the Fed raising interest rates by about 0.75% only, and the Fed may confirm that the option of further monetary tightening will depend on upcoming economic data, especially with increasing concerns about economic recession. This scenario may have a temporary positive impact on the dollar, but after the markets absorb the decision, and alongside the Federal Reserve Governor Jerome Powell's press conference, we may see a significant decline in the dollar and a rise in both gold and digital currencies. This scenario is currently the most likely.

Meanwhile, the very positive scenario for the US dollar is that the bank raises the interest rate by about 100 basis points and hints at further strong rate hikes if inflation continues to rise. This scenario strengthens dollar buying and makes investors move away from other investments such as gold, digital currencies, or US stocks. This scenario is currently unlikely but may happen, especially with continued high inflation near its highest level since the early eighties.