The big event yesterday was obviously the Fed and as expected they raised their interest rates by 25bps and kept their language on track for an additional hike this year. The Fed also removed the “accommodation” rhetoric from their statements and markets are looking at an additional three rate hikes through 2019. This creates considerable divergence on policy from the Fed versus other central banks and while the ECB are expected to hike rates towards the end of next summer, the UK are still facing inflationary pressures with some talk of further rates hikes, nothing close to the expected pace of US rate hikes however. There were no any great surprises from the Fed, they see growth slightly ahead of forecast in 2018 and again in 2019 while inflation (PCE) forecasts remain unchanged. The initial reaction was rather muted in USD pairs, EURUSD was more or less unchanged in the hours after the release and only this morning’s entry of Europe saw a pick-up in demand for USD with EUR selling driving EURUSD back below 1.1700. GBPUSD has also been declining this morning from high just below 1.3200, now looking back towards the 1.3100 area.
Taking a look closer to home and its rare these days to release any commentary without some word on Brexit. Not too much to be said on this at the moment, there was a flash across the wires suggesting the EU would now look to prepare in greater detail for a no deal Brexit but we saw little reaction from the EURGBP pairs. The chancellor did bring the UK’s budget forward to October 29th however. I continue to feel that for now the issue is not EU vs UK, as it stands May cannot even get the support of her own government and without that there is no conversation to be had with the EU. The pound remains very exposed to headlines and Brexit sentiment so managing your risk exposures in sterling pairs is key. That being said the larger ranges remain in place, EURGBP finding sellers back towards .9000 are, .9030 and the .9100 have been largely selling areas above that. .8850 acts as stronger support to downside moves but today we’re looking at support around the .8905/10 area.
German CPI data is due for release today, this is the preliminary September figure and is expected to remain at 2%,.We’ve also got the ECB’s economic bulletin release due out any minute now as well. The BOE’s Carney will be speaking in Frankfurt as he chairs a panel, while late today the Feds Powell will also be speaking at a senate event, talking about the economy.