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FOMC to bring waves of volatility - Westpac

FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, reviews the main events coming up, emphasizing the FOMC, which could bring big waves of volatility, Sean notes.

Key Quotes

Asia’s data calendar includes Singapore’s Aug trade data (f/c exports 2.5% y/y) and the Bank of Thailand monetary policy decision, expected steady at 2.0%.

On the eve of the Scottish referendum, UK unemployment data poses considerable threat to sterling. Aug jobless claims are seen -30k but more notable should be the July employment headline. This is presented as a rolling 3 month change, with the Jun reading of 167k pumped up by a huge 227k in April which now drops out of the headline rate. We look for a -65k headline, a long way from the +120k median. The BoE MPC Sep meeting minutes are also due, with probably little change from the 7-2 vote for no change in August. The final reading on Eurozone Aug CPI is due, expected to remain at 0.3% y/y total, 0.9% y/y core.

The US data calendar is worth watching before the FOMC decision. Aug CPI is expected to remain near target, 1.9% y/y on both headline and ex-food & energy, with monthly changes of 0 and 0.2% respectively. The Q2 US current account deficit is seen widening slightly to -$113bn. The Sep NAHB housing market index is next, expected to tick up slightly to 56 from 55 in Aug (% of homebuilders seeing good conditions).

The FOMC meeting concludes with what could be waves of volatility, given that this meeting includes the quarterly economic and financial forecasts plus the press conference by Chair Yellen. A reduction in QE from $25bn to $15bn per month is a given, with most attention on whether the FOMC believes that it is still likely to be appropriate to “maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends”. Retention of this phrase is likely to provoke a sharp USD drop while its replacement with a new outlook should encourage further USD gains – depending of course on whether the new phrase implies that an earlier hike is a serious prospect. Then there’s the potential USD support from a likely higher median projection of the funds rate in 2015 and 2016 by FOMC members. And Yellen could well douse any initial USD jump if her press conference plays down a kneejerk reading of the statement and quarterly forecasts as hawkish.

GBP/USD trading the polls on Scottish vote

GBP/USD is trading at 1.6263, down -0.08% on the day, having posted a daily high at 1.6280 and low at 1.6249.
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