Market News & Insights
21 August 2013

FOMC Minutes Headlines the Day ahead of Jackson Hole

EUR/USD 1.3389
GBP/USD 1.5671
GBP/EUR 1.1701 (0.8545)
EUR/CHF 1.2302
GBP/CHF 1.4401
GBP/AUD 1.7379

Today’s main focus and the focus of the week really is the release of tonight’s (7pm GMT) Fed minutes from July. Investors are looking for further indications as to when the central bank may start to unwind its bond buying program. Fed Chairman Ben Bernanke has said that the decision to start tapering will depend on whether economic data is strong enough. Recent speeches by Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Atlanta Fed President Denis Lockhart have shed a lot of light on the internal debate at the central bank. Officials at the U.S. central bank seem eager to pull back on their extraordinary support of the economy but are unsure whether the economy is strong enough to thrive without it. And markets are watching the central bank hawks and doves closely. The Fed expects the economy to improve markedly between now and the end of the year after a few fairly dismal quarters, but so far the data has been mixed, leading to honest disagreements among economists and within the Fed over whether an expected pickup will materialize. One key question: Will the Fed start to pull back, or taper, its $85 billion-a-month asset-purchase plan at the policy meeting in September. How each of the 19 top Fed officials views the outlook will be important to whether the central bank slows down the pace of its purchases next month or waits for subsequent meetings in October and December.

This will I’m sure be high up on the agenda at the Jackson Hole Symposium tomorrow where central bankers, finance ministers, academics, and financial market participants from around the world meet to discuss economic policy issues. Federal Reserve Vice Chairman Janet Yellen and former Bank of Israel Governor Stanley Fischer will moderate discussions this month at the Kansas City Fed’s Economic Policy Symposium in Jackson Hole, Wyoming. In contrast with recent years, there will be no keynote address on the first full day of the conference, which is Aug. 23. Ben S. Bernanke, who has given the introductory speech every year since becoming Fed chairman in 2006, doesn’t plan to attend the conference. The agenda was provided to attendees under embargo. Bank of America Corp. (BAC) published details of the schedule in a research note yesterday. GBP/USD has seen significant strength in the last few days as we push up through 1.56 but there is strong resistance on the topside to break through that area. Against the Euro the USD has lost some gains in early morning trading pushing back through 1.34.

The euro showed little reaction after official data on Tuesday showed that German producer price inflation dipped 0.1% in July from a month earlier and was 0.5% higher on a year-over-year basis. Economists had forecast a 0.2% month-over-month increase and a 0.7% annual gain. Today there is nothing of note out on the data front from Europe but tomorrow sees a raft of PMI releases from France and Germany ahead of Fridays German GDP q/q.
In the UK we have public sector borrowing released at 9.30 where the market expects a decrease to -3.7billion. EUR/GBP tested the key level of .8580, but we anticipate EUR/GBP to correct and drift back to the .8500/10 range.