Fed Speak Shows Hawks Outnumber Doves

Fed members took turns to briefly talk about monetary policy yesterday and the markets were indeed volatile. While Janet Yellen refrained from making any references to monetary policy, the remainder of the Fed members took time to paint an optimistic view of the US economy striking a fairly confident tone that there was a strong and a broad consensus among the voting members for hiking rates in December. The only exception was Chicago Fed Governor Charles Evans who struck a cautious tone, noting that there would be substantial costs to premature monetary policy normalization. He however remained optimistic noting that the Fed funds rate could be between 0.75% and 1.00% by end of 2016 while expecting to see the US unemployment rate stabilize to 4.90% by end of 2016. The equity markets slipped on the Fed speak as the S&P 500 closed below its 200-day moving average ending yesterday’s session at 2039.

After lackluster inflation data yesterday, Euro Area GDP estimates will be released today. The preliminary GDP estimate for the Eurozone is expected to stay unchanged at 0.40% from last quarter. Weaker GDP numbers are likely to keep the pressure on the Euro as the single currency struggles near the lows. Earlier this week, Euro Area industrial production fell -0.30% in September, posting a second month of declines from -0.40% in August. The weak set of data is likely to keep the GDP numbers subdued. EURGBP formed a short term base near 0.7060 and 0.7050 yesterday, closing the day with modest gains in a near-term bullish engulfing candle. The currency pair has previously posted a strong and steady decline but managed to recover after the BoE’s dovish inflation outlook with more volatility expected as Britain starts to campaign for the EU membership referendum.