MARKETS EYE FOMC RATE DECISION
The global financial markets are preparing for a highly active events calendar on Wednesday, headlined by a key policy decision by the US Federal Reserve.
The Federal Open Market Committee (FOMC) will hand down its policy decision at 18:00 GMT. Traders are nearly unanimous in their view that interest rates will rise by 25 basis points at the conclusion of the meeting on Wednesday, according to the 30-day Fed Fund futures prices, which have long been used to express the market’s views on monetary policy.
A rate decision will be accompanied by quarterly economic projections covering GDP, unemployment, and inflation. The US dollar is considered to be highly sensitive to the release and could move sharply depending on the tone of the official rate statement.
However, traders looking for market-moving events will find plenty of action ahead of the FOMC decision. In Europe, Germany will release the final May Consumer Price Index (CPI) at 06:00 GMT. Shortly thereafter, the UK Office for National Statistics will release the latest jobs numbers at 8:30 GMT.
In North America, the US government will report on retail sales and consumer inflation at 12:30 GMT. These closely watched reports will be followed by data on business inventories at 14:00 GMT.
The euro has traded in a steady range against the dollar this week, as investors parsed through mixed economic data ahead of the Federal Reserve monetary policy decision. The EUR/USD exchange rate continues to trade in the 1.12 vicinity within a predictable range, as market participants look for fresh trading catalysts to the upside or downside.
The British pound rose sharply on Tuesday as UK inflation soared to nearly four-year highs. Consumer prices surged 2.9% in the 12 months through May, well above analysts’ median estimate. The GBP/USD exchange rate largely preserved post-CPI gains, with prices consolidating in the mid-1.27 region. Despite its long-term negative bias, cable has rallied above a key technical resistance located at the 38.2% Fibonacci retracement. A clean break above that level could lead to a rally back above 1.28. On the opposite side of the coin, the pair faces support at 1.2635. Over the long haul, the cable will face significant challenges regaining momentum now that the Brexit door has swung wide open.
A hawkish Fed statement could help reverse some of the huge declines incurred by the USD/CAD over the past two days. The loonie is riding two-month highs, a Bank of Canada (BOC) official indicated that multiple rate cuts through 2015 had largely done their job. The USD/CAD has declined over 200 pips since Friday to trade in the low 1.32 range. The pair faces a bearish outlook, with only fundamentals capable of driving prices higher.