Markets were relatively subdued yesterday ahead of what has the potential to be a massive week for both sterling and dollar. The dollar held firm against all majors as the Federal Open Market Committee commenced its two day interest rate meeting. All eyes will be on the post meeting press conference where Janet Yellen releases their policy statement and new economic projections in Washington later tonight, after European markets are closed. Economists are divided as to whether the FOMC will leave its benchmark interest rate unchanged at 0-0.25% for a “considerable time” after it finishes its bond purchase programme in October. Today, however, we expect no change in the benchmark rate. What is of utmost importance to the markets is the language that evolves from the press conference which will be listened to very closely and in particular how long after QE ends can we expect to see the first of possibly many interest rate increases. The expectation is that the FED will show signs that its policy stance is becoming more hawkish moving towards tighter policy. The Fed have up to now used the term “considerable time” when discussing policy and any change or softening of this language will point towards tighter monetary policy and lend support to the dollar.
Meanwhile in the UK it’s hard to think of anything else but the Independence Referendum tomorrow. However, today we see the release of the minutes of the last MPC Meeting where markets will be looking for any clues as to a more hawkish stance by some committee members. Also today we have Average earnings and Unemployment Figures which will give us an insight to the health of the UK Labour market. Wage growth has been relatively subdued to data but we expect to see Unemployment drop slightly from 6.4% to 6.3%.
Out of Europe we will see the release of the EU-18 Final Harmonised Indices of Consumer Prices (HICP), expectation there is for a figure of .9%.