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Would Yellen like to be normal?

Would Yellen like to be normal?

In the UK, the routinely volatile retail sales data for August is due out today. The market will look for signs of whether private consumption growth remains weak due to the negative real wage growth and lower consumer confidence.

Sterling has made substantial gains this September as the Bank of England tells markets it believes an imminent rise in UK interest rates is appropriate. The rally could continue in the near-term as short-positioning is flushed out of the market and a November interest rate rise is fully price argued by analysts.


In the Dollar market yesterday there were upside surprises for both housing starts and trade prices in August, alongside a wider-than-expected Q2 current account deficit. This, however, had little impact on the Dollar against its peers as Cable continues to hover just above the 1.3500 mark whilst against the Euro, the Pound sits just below the 1.1300 barrier.

For the Dollar today, the US Federal Reserve’s FOMC wraps up its two-day monetary policy meeting. The FOMC will update its economic projections and provide the latest forecasts for GDP growth, unemployment, inflation, and interest rates.

Janet Yellen, Chair of the Fed, is also expected to talk about the details behind how and when the US balance sheet will start to wind down its $4.5 trillion current total (via policy normalisation). The Fed aims to reduce the sheet to around $2-2.5 trillion by allowing $10 – $50 billion of bonds to mature each month without reinvesting the proceeds with expectations the programme will begin next month.

Therefore, a $2 trillion reduction, even at the higher $50 billion-per-month rate, suggests a wind-down period of around four years. However, in just the same way that this form of quantitative easing has never been tried before, the same can be said that no one has ever attempted to reduce it either.


The Euro initially fell yesterday based on headlines suggesting some European Central Bank (ECB) doubts about tapering asset purchases due to the strength of the Euro. It subsequently rose to 1.2000 against the Dollar as Germany’s ZEW investor sentiment survey remained elevated at 87.9 in the month, above August’s 86.2 and countering expectations of a decline. The EURUSD pair managed to shrug off yesterday’s news citing some concerns among ECB’s rate-setters over the appreciation of the exchange rate in recent months.

There aren’t any macroeconomic data points due for release from the Eurozone.

Data To Watch:

7:00am EUR Producer Price Index (MoM) (Aug), Producer Price Index (YoY) (Aug)
8:00am EUR Non-monetary policy’s ECB meeting,
9:30am GBP Retail Sales (MoM)(YoY) (Aug), Retail Sales ex-Fuel (YoY)(MoM) (Aug)
3:30pm USD EIA Crude Oil Stocks change (Sep 11),
7:00pm USD FOMC Economic Projections, Fed Interest Rate Decision,
7:30pm USD FOMC Press conference

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