Fed will be the focus on Wednesday

Last week, the pound was the currency to watch and, with the Bank of England rate decision and relatively little on the docket for the US, that’s understandable. But, it’s all change this week with the Federal Reserve rate decision due on Wednesday. The rate-setting committee are widely expected to hold the Federal Funds Rate unchanged. With inflation (on both the consumer and the producer side) plodding along and weather events over the past month or so leaving a long tail of both blockers and incentives to economic activity, there’s too much noise at present for the Fed to look through and hike rates confidently.

What will be watched for is any further commentary on the winding down of their balance sheet, any perceived political risks to their inflation/economic forecasts and any hints on whether we’ll see a December rate hike.

Outside of the Fed rate decision, press conference and economic forecasts on Wednesday, Fed’s Kaplan (a voter on the FOMC) speaks on Friday.

Sterling has fourth best week in 40 years

The pound rallied with gusto last week, but further advances will depend on stronger economic and political foundations. At the moment, GBP/USD is a messy cross of two really ugly currencies and the next question for GBP is whether any upcoming rate rise is a one-and-done move that cancels out the emergency cut made following last year’s referendum or is it the start of something else – i.e. a series of rate hikes.

As it stands at the moment we think that a one-and done hike would probably top out GBPUSD at about 1.3750. The dollar is not helping and traders remain happy to sell USD hand over fist on fears over a slowing US economy and concerns over the ability of the Trump administration to meaningfully craft and execute a message on tax, regulation or North Korea.

Bank of England Governor Mark Carney will speak later this afternoon at the IMF in Washington and comments around global growth and inflation will be parsed for further hints on what the genesis of a hiking Bank of England may look like.

The day ahead

For the US and Canada, today’s calendar is relatively light, but minutes from the Reserve Bank of Australia as well as Germany’s ZEW survey in the early hours tomorrow morning could keep both the AUD and EUR volatile. Bank of England governor Mark Carney speaks at 1000CDT.

Have a great day.