GBP/EUR 1.4142 (0.7071)
Normally a sleepy, mid-summer affair today’s July Fed FOMC meeting could be very significant. Whilst no change in monetary policy is expected at the meeting, it’s the clues as to what may happening next that will garner market attention. With odds of a September rate hike roughly priced at 50%, investors will scrutinize the post meeting statement for any hint that members are moving towards the September increase. As one expert stated earlier, today’s “story is how far they are willing to go” in terms of communicating their stance. Based on previous Fed comments, they certainly have a bias towards hiking as soon as possible but as we in Clear Treasury and Chair Janet Yellen keep reminding everybody that ultimately the decision will depend on the economic data. So far the data has been mixed, with the likes of yesterday’s Consumer Confidence survey and last week’s retail sales figures showing surprising falls. However, the two key metrics for the Fed will be inflation and labour data. On the latter, the headline unemployment rate has been encouragingly falling and now stands at an almost normal level of 5.3%, at her July 15th testimony to Congress, Yellen stated that whilst most labour measures are “trending in the right direction,” however there still remains a low participation rate which is keeping wage inflation stubbornly subdued. On the inflation metric, the general measure is still running below the Fed’s long term target, however they may look to focus on the core reading which excludes the recent declines in energy prices.
So all in all, we expect another typical quiet mid-summer trading day for FX markets ahead of this evening’s FOMC decision after which a press statement will be released. It is this release at 7pm that will be closely scrutinised. So far ahead of tonight, the US Dollar continues to trade sideways against its main peers with the likes of EURUSD stuck in a narrow 1.1022 – 1.1098 trading range over the past 24 hours.
In a similar fashion, very little to report on the pound which is experiencing tight trading ranges too, of 1.55/1.56 and .70/.71 against the US Dollar and euro respectively. Like the Fed watchers, sterling fortunes will be driven by the actions and comments of the Central Bank. With this in mind, we are gearing up for a very important day next week, with ‘Super Thursday’ (6th August) the first time the Bank of England will simultaneously publish its policy decision, minutes of meeting, officials’ votes and updated economic forecasts.