US Dollar stands firm ahead of Federal Reserve meeting

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19 September 2017


After a very challenging week for the US Dollar, the greenback held steady against its major peers on Monday ahead of this week’s Federal Reserve meeting.

olicymakers in the US will, on Wednesday evening, be announcing its latest interest rate decision. While the Fed’s FOMC is almost certain to keep policy unchanged, investors will be hoping to gain a clearer picture as to the possibility of a December rate hike. The key to the US Dollar is likely to be the latest ‘dot plot’, which shows where each member of the committee expects rates to be at the end of each year. This may be somewhat downgraded given recent weak data, although rhetoric that expresses optimism over the inflation outlook and overlooks the downside risks to the growth outlook could temper losses for the greenback.

The National Association of Home Builders index out on Monday had little impact on the currency markets. Housing starts data out this afternoon will be the only economic news of note ahead of this week’s FOMC meeting.

BoE Governor Carney hints at interest rate hike

Governor of the Bank of England Mark Carney spoke yesterday, a matter of only a few days after the central bank hinted that higher interest rates are likely in the UK this year. The Pound slipped modestly after his speech in which he added little new information, mostly repeating recent communications. Speaking at the IMF’s headquarters in Washington, Carney claimed that Brexit would push up inflation in the UK and that rising global equilibrium interest rates could lead to a tightening in policy from the BoE.

The tone of recent communications from the BoE has been unambiguously hawkish and we think that Carney will be among the majority of MPC member that vote for an immediate rate increase at the next central bank meeting in November. Retail sales data on Wednesday is expected to show a modest slowdown which could test expectations for the timing of the next hike in the UK.

Eurozone core inflation edges higher in August

Elsewhere, the Euro was little changed for the day just below the psychological 1.20 level against the US Dollar. Investors mostly overlooked the revised Eurozone inflation numbers which confirmed consumer prices grew by 1.5% in August. Core inflation was revised modestly higher to 1.3% from 1.2%, which may provide additional ammunition for the European Central Bank to announce it is soon to begin winding down its large scale asset purchases.

Construction output data in the Eurozone this morning is not expected to rock the boat. We instead await an appearance from President of the ECB Mario Draghi on Thursday afternoon and the monthly business activity PMIs on Friday morning.