Will the US Fed raise the interest rate today or not?
Once again the question raises its head - will the US Federal Reserve (Fed) raise the interest rate at today’s meeting? But the main focus will be on the Fed Chairwoman, Janet Yellen, in her post-meeting speech. Investors will scrutinise her statement to see whether she maintains her hawkish views from the Jackson Hole symposium. Alongside the policy statement, Fed officials will also provide a new set of forecasts for economic growth, unemployment, inflation and the future path of interest rates.
On the economic data front, US weekly mortgage applications is up for release today. In the UK, the just out data showed that UK’s public sector net borrowing registered a deficit in August. It is a quiet day for economic releases in the Eurozone.
Pound Sterling – UK Markets
The Pound has extended its previous session losses against the US Dollar this morning. The just out data showed that UK’s public sector net borrowing recorded a deficit for August, after posting a rare surplus in July. The Bank of England’s quarterly bulletin is due today, which contains its analysis on a wide range of economic and financial issues, both domestic and international. It also includes commentary on latest market developments and the BoE’s monetary policy operations.
Sterling had a pretty rough day yesterday and ended lower against the greenback and the Euro, as market participants continued to speculate about the Fed’s interest rate increase. This made the Pound slip below the critical level of 1.30 against the US Dollar for the first time since mid-August. Separately, the BoE’s new Monetary Policy Committee member, Michael Saunders, stated that the nation is likely to weather the Brexit-triggered slowdown better than most economists projected.
US Dollar – US Markets
The greenback is trading stronger against the Pound and Euro this morning. Today’s US Fed’s monetary policy meeting outcome will get a lot of market attention. It is widely anticipated that the central bank will wait until December before increasing the benchmark interest rate.
Yesterday, the US Dollar strengthened against most of its major peers. Data revealed that the US housing starts dropped more than expected in August, after increasing for 2 consecutive months. This is because building activity was disrupted due to bad weather conditions in the Southern region - the biggest region for home construction. In other economic news, US building permits surprisingly dropped in August. However, underlying data indicated there is modest momentum for single-family home building. The disappointing US housing starts and building permits data dampened optimism over the health of the nation’s housing sector.
Euro – European Markets
The shared currency is trading mixed against the US Dollar and Sterling this morning. The Eurozone economic calendar is devoid of data-points today. Despite this, today’s trading session would not be a very peaceful one for the Euro – US Dollar currency pair, with the much awaited US Fed monetary policy meeting expected to have a significant impact. Investors await a speech by the European Central Bank President, Mario Draghi, scheduled for tomorrow. And the Eurozone’s consumer confidence index, manufacturing and services Purchasing Managers’ Index data is also up for release this week.
Yesterday, a report by German statistics office, Destatis, indicated that the nation’s producer price index turned negative in August, with energy prices turning out to be the biggest drag. Meanwhile, on an annual basis, the decline in prices were steeper than expected in August.
Other Currencies – Highlights
The Japanese Yen plummeted against the US Dollar following the Bank of Japan’s (BoJ) monetary policy decision. The BoJ, notorious for pulling out surprises, managed to do the same this time as well. Although the central bank held interest rate unchanged at -0.10%, it tweaked the policy framework. Stepping up its battle against deflation, the BoJ decided to abandon its base money target and instead set a “yield curve control” under which it plans to buy long-term government bonds and keep 10-year bond yields around current levels of 0.0%. Further, the central bank will continue quantitative easing until inflation “exceeds” 2.0%.
In other economic news, Japan’s trade data continued to underwhelm in August as the nation slipped into deficit for the first time in 3 months. Exports posted a decline for the 11th consecutive month, underscoring sluggish foreign demand. The final reading of Japan’s machine tool orders confirmed its preliminary reading for August.