Waiting for Powell

Markets await the Fed decision after the dollar slides as prospects of a dovish hike grow.

Previous Day's Market Highlights

The dollar was the major mover on Tuesday as market participants unwound their long positions in anticipation of the Fed delivering a ‘dovish hike’. The dollar lost around 0.4% against the euro while the dollar index fell to one-week lows. 
Data releases were all second tier and had little effect on the market, however German business climate data fell for the fourth consecutive month to a 2 year low, adding further fuel to the fire of concerns over eurozone economic prospects next year. Over the pond, US building permits and housing starts recorded solid, above forecast gains however focus for US dollar traders lay elsewhere. 
Sterling traded flat on the day, with no political news flow to move the markets. The pound is likely to remain within its current, well defined ranges until some fresh news on Brexit hits the wires. 
Away from FX, European equity markets had another torrid time as major bourses fell around 0.7%. US equities closed at unchanged levels despite an earlier intraday rally of more than 1%. Crude oil was also volatile, with Brent losing 5% and WTI shedding more than 7% due to a multitude of factors, primarily concerns over global growth, record US shale and Russian production and ever-increasing global inventories.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1118 1.1349 1.1004 3.04%
GBP/USD 1.2669 1.2927 1.2491 3.37%
EUR/USD 1.1395 1.1472 1.1267 1.79%
GBP/AUD 1.7610 1.7818 1.7208 3.42%
GBP/NZD 1.8454 1.8985 1.8183 4.22%
GBP/CAD 1.7063 1.7175 1.6722 2.64%

Today's Market Highlights

The focus of market participants’ attention will undoubtedly lie with the conclusion of the 2 day Federal Reserve Meeting this evening. The market is currently expecting a 25bps rate hike, the Fed’s fourth this year, to bring the target range for the Fed Funds Rate to 2.25% - 2.5%. As this news is widely expected, greater emphasis will be placed on the Fed’s latest set of economic projections as well as the dot plot, outlining Fed members’ views on where interest rates will need to be over the coming years. This will give the market clarity over the pace of policy tightening next year and would likely see the market, and the dollar, re-price accordingly. 

Fed Chair Powell will also hold a press conference after the rate decision where investors will be closely examining his tone while also looking for further clues as to next year’s policy changes. In addition, Powell is likely to face questions around the Fed’s independence after coming under further criticism from President Trump yesterday. 

Away from the Fed, CPI inflation figures from both the UK and Canada will be closely watched with both figures set to decline to 2.3% and 1.9% respectively on a year-over-year basis. While some of the fall is down to the drop in energy prices, investors will be paying keen attention to the figures and their impact on central bank action in the coming months. 

Elsewhere, GDP figures from New Zealand are set to show a decrease in activity compared to the last release, with expectations for 0.6% quarter-on-quarter growth while trade balance figures are expected to show a modest narrowing of the deficit. Finally, investors will keep one eye on any political developments in the UK, before parliament rises for its Christmas recess tomorrow.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP CPI (y/y) 2.3% 2.4%
1:30pm CAD CPI (y/y) 1.9% 2.4%
7:00pm USD FOMC Interest Rate Decision 2.25% - 2.5% 2% - 2.25%
7:30pm USD FOMC Press Conference
9:45pm NZD GDP (q/q) 0.6% 1.0%