Fed Decision Day

Daily Analysis - 17/09/2015

The FOMC is Set to Report on the Federal Funds Rates and New Monetary Policy Developments


The US Federal Reserve will release its monetary policy statement later including the FOMC economic projections followed by the the press conference hosted by Fed Chairwoman Janet Yellen. Futures markets have currently factored in a 30% probability for a rate hike today.

UK Unemployment Rate Dips

The monthly jobs report released by the ONS yesterday showed that the UK labour market continued to improve. UK unemployment dipped to 5.50%, recording the lowest unemployment rate since the ONS started keeping records. The average earnings index also bounced back strongly, rising 2.90% excluding bonuses and posting its strongest ever levels. On the backdrop of a robust unemployment report, the British Pound surged higher across the board recovering from losses earlier this week attributed largely to a weak CPI reading. GBPUSD closed higher yesterday, gaining 0.95% to close at 1.5490. Today’s session will see the monthly retail sales numbers which have largely remained subdued for the past two months. The median estimates point to a 0.20% increase in retail sales, up from 0.10% last month. However, the data is unlikely to dramatically impact GBPUSD in the run up to today’s FOMC event.


US Inflation Remains Benign

Consumer inflation data for August released yesterday showed a monthly decline of -0.10% on the headline while the Core CPI figure which excludes the volatile components such as food and energy rose 0.10%, in-line with the consensus estimates. On a yearly basis, core consumer inflation was at 1.80%, printing below the median estimates of 1.90% and unchanged from the previous month. These latest numbers are seen as bosltering the case for the Federal Reserve to pass on a rate hike plan this month. On the other side of the scale, home builder confidence rose to 62 according to the data released by the National Association of Home builders (NAHB). The data beat estimates and broadly reflects the pickup in the US housing markets, signaling that growth in the US economy continues at a healthy pace, adding to the hawkish argument.


SNB Monetary Policy Assessed

The Swiss National Bank will convene today for its quarterly monetary policy review. Not much is expected from the SNB in terms of any significant changes and interest rates are expected to remain unchanged at -0.75%. Macroeconomic data from Switzerland in recent months has been better than expected, especially after the economy bounced back in the second quarter after a GDP contraction in the first quarter. Focus will therefore be on the SNB's currency interventions and any revisions to the growth forecasts. Keeping in view with the SNB's narrative, the Central bank could maintain a dovish tone reminding financial markets that the Central bank would stand ready to intervene further in support of the Swiss economy if necessary. The Swiss Franc has managed to weaken considerably since the Chinese Yuan devaluation turmoil, erasing over 4.20% since early August as policymakers target further devaluation.


FOMC Policy Decision Due

The US Federal Reserve will conclude its two-day meeting and will be releasing the FOMC statement on monetary policy. The event is expected to be accompanied by a high level of volatility in financial markets with the median consensus expecting the Fed to keep rates unchanged at this meeting. The Federal Reserve will also be releasing the staff economic projections which will be closely watched considering prior projections had pointed to two rate hikes before the end of 2015. A shift in the dot plot could potentially turn the scenario very bearish for the US dollar combined with Fed inaction. Federal Reserve Chairwoman Janet Yellen will subsequently host the press conference. In the event the Fed does not hike rates, focus will evidently shift to the dot plot and the tone of the press conference itself which could swing the US dollar in either direction.


Upcoming Events

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  • 09:30 GMT
  • GBP
  • Retail Sales (MoM)
  • 0.20%
  • 0.10%
  • 13:30 GMT
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  • Building Permits (August)
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  • 13:30 GMT
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  • Housing Starts (August)
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  • 15:00 GMT
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  • Philadelphia Fed Manufacturing Index
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  • 19:00 GMT
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  • Federal Reserve Interest Rate Decision
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  • 19:00 GMT
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  • FOMC Statement
  • 19:30 GMT
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  • Federal Reserve Chair Janet Yellen Speaks

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