Sterling weakened against the Euro and was volatile against the US Dollar, as a result of the Bank of England’s (BoE) Governor Mark Carney’s speech in the US capital. Carney noted that the Monetary Policy Committee (MPC) believes that some withdrawal of the stimulus is likely to be needed in coming months. However, the Canadian banker added that rate hikes will be gradual and limited, making traders reluctant to buy the Pound.

In the US, the two-day Federal Reserve meeting starts today. Investors and traders are certain that the Fed’s board will leave the benchmark interest rate unchanged, but they will be searching for clues in the post-meeting statement regarding the unwinding of the Fed’s enormous balance sheet. In Europe, data showed that the Eurozone’s construction output increased in July, after a decline in June.

Pound Sterling – UK Markets

Today, the Pound was volatile against the US Dollar with the exchange rate hovering around the $1.35 mark. Sterling dropped against the Euro with the exchange rate set at €1.12. Mark Carney delivered a speech in Washington during which he reiterated that a partial withdrawal of the monetary stimulus is likely to be appropriate over the coming months.

The BoE’s Governor seized the opportunity to water down market expectations regarding interest rate hikes by saying that they will be gradual and limited. Carney noted that the BoE’s monetary policy will have to change in order to align with central bank decisions across the world in terms of raising borrowing costs. Carney expressed the opinion that the government’s plan to replace trade ties with the EU with a series of trade deals with third countries won’t produce the awaited results immediately. “Any reduction in openness with the EU is unlikely to be immediately compensated by new ties of a similar magnitude with other trade partners. The reorientation of business relationships will take some time,” said Carney.

The National Housing Federation (NHF) blamed government cuts for the fall in the construction of social housing over the last seven years. NHF represents social landlords and housing associations. In its report published today, the NHF stressed that the government’s capital commitment to building homes has been slashed to half from the £11.4bn in 2009. The report notes that state spending on this sector has been reduced to 0.2% as a share of GDP.

US Dollar – US Markets

The US Dollar dropped against the Euro with the exchange rate set at €0.83. The US Dollar Index also moved lower coming in at 91.81, losing most of yesterday’s gains. Yields on the 10-year US Treasury bond hit a one-month high before retreating to lower levels.

Today, investors and traders will be focussing on the long-awaited Federal Reserve September meeting. During this meeting, the Fed’s board will decide on the matter of interest rates and, possibly, on the issue of unwinding its balance sheet. The Fed is expected to keep its benchmark interest rate at 1.25% for now, with some analysts anticipating a rate hike in December. HSBC analysts said in a report that they expect the Fed to announce the commencement of its balance sheet contraction in the post-meeting press conference. HSBC is anticipating little market reaction since markets have been prepared for such a decision by Fed officials.

The United Nations (UN) didn’t escape Donald Trump’s criticism when he visited for the first time its headquarters in New York. The US President said that “the UN has not reached its full potential because of bureaucracy and mismanagement, while its regular budget has been increased by 140% and its staff has more than doubled since 2000.” Trump will deliver a speech to the UN General Assembly later in the day. Yesterday, the Senate voted in favour of a massive increase in military spending. The 2018 National Defence Authorisation Act (NDAA) is a $700bn defence policy bill which controls how money will be spend during the next fiscal year, which start in 1st October.

Euro – European Markets

The Euro strengthened against the US Dollar with the exchange rate set at $1.12. The Euro got boosted by a series of positive data coming from the Eurozone and Germany, also taking advantage of the US Dollar’s drop just before the Fed’s meeting.

Eurostat’s survey showed that the Eurozone’s construction output in July grew by 3.4%, on a yearly basis. On a monthly basis, construction output in July increased by 0.2%, after having dropped in June by 0.5%. The Eurozone’s current account surplus in July got larger reaching €25.1bn, €2bn more than in June. The annualised surplus shrank to 3% of the Eurozone’s GDP. The European Central Bank (ECB) expects the surplus to reach 2.9% of GDP and then to be around 2.5% of GDP for the next two years.

A survey by the German Centre for Economic Research (ZEW) showed that the economic sentiment in Germany rebounded sharply, against expectations, in September. It was the first time that surveyed investors appeared optimistic after a four-month streak of negative results. A similar survey by ZEW in the Eurozone showed that investors grew more optimistic about the economic conditions, but the recorded result wasn’t as strong as anticipated.

Other Currencies – Highlights

Sterling edged lower against the Australian Dollar, trading at 1.68 AUD. The Reserve Bank of Australia (RBA) released the minutes from its 5th September monetary policy meeting. The RBA’s board highlighted that a stronger Aussie might lead to a slowdown in growth and a weak pickup in inflation. The minutes revealed that the central bank is happy with the strong labour market and jobs growth, but still is afraid that the high household debt can pose a danger in the future.

The Pound fell against the New Zealand Dollar, trading at 1.85 NZD. Westpac’s Consumer Confidence survey indicated that households remain in good spirit, despite the fact that the index softened in September when compared to previous months. Westpac’s report suggests that the minor drop in confidence may be related to slower gains in the housing market.

Sterling jumped against the Japanese Yen, trading at ¥151.09. Reuters’ corporate survey in Japan showed that four out of ten Japanese companies face delays or problems in their US business plans and think that Trump’s political moves are putting growth at risk.