Pound steady ahead of the Fed
The Bank of England’s Gertjan Vlieghe’s speech was largely in line with the Central Bank’s recent monetary policy statement. His view that one or two rate hikes a year will probably be required, and that it is possible for the Asset Purchase scheme to be unwound with minimal market impact, caused little Sterling reaction. The Labour Party confirmed that it would be likely to vote against any Brexit deal secured by Theresa May which further complicates the domestic politics, adding to Conservative Party internal tensions and adding to already high Brexit uncertainties.
Oil prices and a rise in UK bond yields gave some protection to the Pound. Positive comments from Germany’s Angela Merkel allowed Sterling to make modest gains on it’s peers, peaking close to 1.3190 on the Dollar and near 1.1204 on the Euro. French Finance Minister, Bruno Le Maire, warned that the EU would suffer from a favourable Brexit deal, highlighting the current negotiation deadlock and the fact all EU members are needed to ratify the final deal.
The Pound opens slightly lower at 1.3170 against the Dollar and 1.1200 against the Euro. Theresa May is due to speak in Washington this afternoon.
Geopolitical data was the story of yesterday, with German bond yields continuing to move higher. Benchmark 10-year rates are at a 3 month high and reports out of Italy are indicating that the 2019 deficit would be set at 1.9% of GDP which eased the concerns over the budget.
The ECB’s Praet stated there was no new stance on inflation which was seen as an attempt to downplay hopes for a more aggressive stance on monetary policy. He also commented that President Draghi’s speech on Monday contained no new information and was the same as the Central Banks statement which tipped the Euro lower. He agreed that data pointed towards ending the bond purchases programme at the end of 2018.
Todays data includes the non-monetary policy’s ECB meeting, the ZEW survey out of Switzerland and mortgage approvals out of the UK.
The US dollar slipped into negative territory yesterday as the market is waiting for the Federal Reserve (FED) rate decision, which is due later today. Investors and Americans will focus on the tone on future rate path which will paint the way for Dollar as a whole.
US consumer confidence strengthened to 138.4 for September from an upwardly-revised 134.7 the previous month, well above consensus forecasts and close to 18-year highs. The Richmond Fed manufacturing index also strengthened to 29 from 24 previously with a renewed strengthening of the prices received and paid indices. The dollar was still unable to gain significant support following the data, although the Euro was again unable to break the 1.1800 area.
Fed Chair Jerome Powell and his colleagues will likely signal a total of four rate hikes in 2018. The outlook for the next moves will be eyed to see if the Fed will move to tight monetary policy.
Market sentiment is nervous on the China front after reports emerged that the White House is prepared to impose even more taxes on Chinese imports if trade talks fail.
All eyes will be on the US Fed rate call, coming in for landing at 7:00 pm, where markets are broadly expecting a 0.25% rate hike.
Data to watch
14:00 USD New Home Sales (MoM) (Aug)
18:00 USD FOMC Economic Projections
18:00 USD Fed’s Powell Speech
18:00 USD Fed’s Monetary Policy Statement
18:00 USD Fed Interest Rate Decision
18:30 USD FOMC Press conference