Market Brief: will FED action impact the dollar?

20 Sep 2017

Kevin Musisi

Dealing team

Currency markets were a little subdued yesterday ahead of today’s FOMC announcement that marks the key event of the week.

Today's data release
  Key levels
09:30 UK retail sales   Support Resistance
15:30 US home sales 1.3270 1.3870
19:00 US FOMC rate decision 1.0935 1.1560
19:30 US FED's Yellen news conference    

Market overview

Currency markets were a little subdued yesterday ahead of today’s FOMC announcement that marks the key event of the week. The key focus for meeting is whether the FOMC will finally sanction the start of its balance sheet normalisation process - our economists are firmly of the view that it will. One question is whether the start of QE unwind puts any upward pressure on Treasury yields similar to 2013’s ‘taper tantrum’, although for the moment US Treasuries seem relatively relaxed with 10yr yields some 40bps off their 2017 highs. Indeed it could be a volatile evening for the markets so be sure to speak with your dealer to see how to manage any risk ahead of the event.
Staying in the US, President Trump made his debut speech at the UN general assembly which unsurprisingly was filled with plenty of rhetoric but little in the way of substance. On North Korea, he said “The United States has great strength and patience, but if it is forced to defend itself or its allies, we will have no choice but to totally destroy North Korea,” and that “Rocket Man is on a suicide mission for himself and for his regime”. On Iran, he said its nuclear program is “an embarrassment to the US” that should be revisited. Elsewhere, the Republicans in the Senate are said to have reached a tentative budget deal that paves the way for reforms in tax legislation that would allow up to $1.5tn of revenues to escape the federal government due to tax cuts, which analysts say would expand the deficit, but is at odds with the Republican stance of fiscal discipline.
Back home, the FT reports that the Prime Minister is said to be preparing to offer at least EUR20bn to fill the EU budget hole post Brexit, in what would be the first tangible attempt to meet divorce bill demands. If the offer were accepted it would allow negotiators to move forward with discussions and progress to new areas of contention.

The day ahead

Looking ahead today we begin with UK Retail Sales at 9.30 before we cross stateside this afternoon with US home sales at 15:30 before the main event at 19:00.

Thought of the day

For those of us who love to sleep, or perhaps struggle to doze off, there aren't many things we wouldn't do to improve the quality of our shut-eye. There are lotions and potions we try, pills and supplements we pop - not mention the yoga, hypnosis and self-help books all available to us - all in the name of helping us sleep. It is now suggested that it is not the length of sleep which causes us to be refreshed upon waking. The key factor is the number of complete sleep cycles we enjoy. Each sleep cycle contains five distinct phases, which exhibit different brainwave patterns. One sleep cycle lasts an average of 90 minutes: 65 minutes of normal sleep, 20 minutes of REM sleep (in which we dream), and a final 5 minutes of non-REM sleep. So gone are the days of getting your 8 hours, it is now about sleeping in multiples of 90 minutes! September’s FOMC meeting concludes tonight, will the FED announce their balance sheet reduction plans? Will there be any changes to the FEDs ‘dot plot’? Whatever happens we can expect volatility, to capitalise on these overnight market moves you can use a market order strategy that will automatically execute whilst you are tucked up in bed! To discuss the potential outcomes of tonight’s decision please contact your Investec Dealing team on 0800 055 6339.

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