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Fed plots new course for interest rate hikes

21st September 2017 Market Update

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?? GBP – Retail sales in the UK came in yesterday 0.8% higher than forecast, which gave the pound a boost in morning trading. We are seeing strong store price increases compared to a year ago and this is leading to inflationary pressures. The figure is another driver towards a potential rate increase in the next few months.

BoE policy committee member Ian McCafferty spoke yesterday regarding a slowing UK economy and predicted only 1.5% annual growth over the next couple of years.

Although the pound lost much of its morning gains throughout the day, the evening session saw a return to immediate post data levels following the US Fed meeting.

?? EUR – As the German election draws closer, there is a lot of speculation as to who Angela Merkel’s party will form a coalition with. Merkel has worked well with the social democrats over the last 4 years, but the SPD is uncertain of the merits of a second coalition term.

Mario Draghi will be speaking again today at 2.30pm and commentators will listen keenly to try and gauge the mood of the ECB and monetary policy going forward.

?? USD – All eyes were on the Fed last night with the interest rate decision and policy statement, with a focus on how the Fed can reduce its massive balance sheet, which stands at $4.5trn. Interest rates were kept on hold, but the committee pencilled in one more this year and a further two in 2018. The majority of the Fed hawks want to see rates rise in order to keep ahead of the inflationary curve.

Existing home sales yesterday came out below forecast.

Elsewhere, President Trump made his first speech to the UN and, as ever, his rhetoric was bullish. He certainly had other world leaders taking note, though not necessarily in a positive way.

 

Key Announcements

?? GBP
09:30am – Public Sector Net Borrowing

?? USD
13:30pm – Unemployment claims

?? EUR
14:30pm – ECB President Mario Draghi speaks

 

Our View: We have seen Sterling slip slightly versus the US dollar following the Fed meeting last night, but it is still flying high against the euro. With the German election looming all eyes will, once again, be on the way forward with Brexit.

 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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