US Dollar steady ahead of Thursday’s FOMC meeting
15/Sep/2015 • Currency Updates•
Despite a lack of major data out of the UK yesterday, Sterling retreated against the US Dollar, down 0.4% during the course of the London trading session.
Much of the attention yesterday for Sterling was on expectations for Thursday’s Federal Reserve FOMC decision, which of course, will also have implications for the timing of a Bank of England interest rate increase. The markets were also digesting hawkish comments from MPC member Martin Weale on Sunday. Weale claimed rates need to rise “relatively soon”, due to firming wage growth that could cause inflation to rise towards its target in two to three years’ time.
Central bank chief economist and dovish member of the MPC Andy Haldane, who recently voted to keep rates unchanged, also spoke during a debate in London yesterday. However, Haldane disappointed the markets by remained tight lipped about the central bank’s monetary policy stance, steering clear of any potentially market-moving commentary.
Today should be a far more eventful day in the UK economy, with plenty of economic data from the Office for National Statistics this morning for traders to interpret. Inflation will be the main focal point, expected to print flat for August when released at 9.30am this morning.
Surprisingly strong economic data in the Eurozone was mostly overlooked yesterday, with the single currency losing ground against the US Dollar to finish 0.4% down.
The Eurozone economy was given a much needed boost yesterday by some very impressive industrial production data that bodes well for overall economic growth in the third quarter. Industrial output soared in July to 1.9% on an annualised basis, well above the 0.6% that was forecast. The surprisingly robust growth was the highest since the back end of 2013, driven primarily by increases in energy production, higher capital and consumer goods. Germany, Italy and Spain all impressed, however, in a further sign of an economic slowdown in Europe’s second largest economy, production in France lagged behind, decreasing by 0.8% in July. Overall Eurozone industrial output for the month rose by 0.6% month-on-month, ending two straight months of declines.
Elsewhere, inflation in Italy rose by 0.2% in August, while the latest Reuters poll of analysts suggested that the European Central Bank would extend its QE program beyond September 2016 amid lower inflation expectations.
Today looks set to be a similarly busy day in the Eurozone. Trade balance and employment data at 10am will come in tandem to the ZEW economic sentiment indices, all of which may cause moderate volatility in the Euro
The US Dollar held steady yesterday, gaining by 0.3% against its major peers, despite the prospect of an interest rate hike at this Thursday’s rate decision by the Federal Reserve FOMC.
A lack of any major announcements whatsoever in the US yesterday meant all attention was on build-up to this week’s two-day monetary policy meeting by policymakers, set to begin on Wednesday. At 7pm BST on Thursday the FOMC will be announcing one of the most closely watched interest rate decisions in years. However, faltering global growth following a slowdown in China has caused many traders to push back their expectations for a hike over the past few weeks.
We continue to expect a hike, although acknowledge it will be a very close call, with a number of dissenters among the committee.
Expectations for this week’s Fed announcement will continue to dominate trading over the next few days. Retail sales data at 1.30pm London time today will therefore see some focus; however, it would likely take a major surprise to shift expectations for the Fed.
Rest of the world
Worsening political uncertainties and heightened security fears caused the Turkish Lira to plunge further to another fresh record low. Meanwhile, commodity currencies including the Russian Ruble and South African Rand gained against the US Dollar despite a further dip in oil prices.