There is a lot of noise for the Fed
The language of the FOMC minutes would be the key today
The resilience of Sterling against the dollar is something of interest
European markets and US futures are trading lower. Investors are paying attention to the headlines coming from Italy where another election could be a possibility. The spread between 10-year Italian and German bonds is the focal point for investors. We have seen this spread widened up to 132 basis points and it has the potential to continue to move higher.
In the Forex market, the strength of the dollar index is prominent and sellers are respecting it. The limelight is on the FOMC minutes today. The big question is if the Fed is going to stick to its gun -increase on the interest rate only three times a year?
No doubt, there is a lot of noise that the Fed could deviate from it’s monetary policy stance due to the strength in inflation. This could result in Fed increasing the interest rates more than three times in 2018. The language of the FOMC minutes would be the key today, this would provide us with the clues about the Fed’s intention and traders would adjust their positions on the back of that.
The FOMC minutes is not the only aspect which traders are going to watch closely. We also have some important economic numbers due today; the existing home sales data & Markit Economic PMI report. If we see these numbers coming out strong, traders would bet more on the dollar index to move higher.
The resilience of Sterling against the dollar is something of interest, and this is mainly because traders think that the Brexit deal could take place at the end of this year. Although, we have our doubts about this because the road is long and the progress is not substantial.
For now, it is more about the economic data which would be able to shift the momentum. The UK’s labour market data is the chief factor which we think will help the Bank of England to make it’s mind on another interest rate hike. Currently, the odds are sitting at 76% that another rate hike could become a reality as soon as May.
However, the upcoming labour data could certainly hammer those odds if the numbers do not stack up. What investors want to see is if the wage growth could outpace inflation given that the inflation is a major headache. The Bank of England surely understands that without job growth, changing the stance on it’s monetary policy would be a destructive move.
Apart from the economic data, the testimony of the governor of the Bank of England, Mark Carney, along with monetary policy committee members, Broadbent, Haldane and Tenreyo, will be in the spotlight. They will be defending the level of inflation in front of the parliament. The probabilities are there could be some interesting headlines from some of the members and these headlines could bring huge moves for the currency.
