mask Hawkish FOMC rolls over on trade war anxiety and Now It’s the ECB’s turn

14/ 06/ 2018

Hawkish FOMC rolls over on trade war anxiety and Now It’s the ECB’s turn

Daily Update - 14th June 2018

Yesterday’s Focus

  • GBP Consumer Price Index, Producer Price Index
  • EUR Industrial Production
  • USD FOMC Economic Projection, FED’s Interest Rate Decision, FED Powell’s Speech, FED’s Monetary Policy Statement

Yesterday’s Explained

The euro edged higher against US dollar on Wednesday after the Federal Reserve raised interest rates as expected and projected a slightly faster pace of rate hikes in the coming months. Two additional hikes are now expected by the end of this year, compared to one previously.

The greenback's bounce tied to the Fed's perceived hawkish stance faded as traders booked profits in advance of the European Central Bank's meeting on Thursday, where policy-makers may discuss the timing of winding down its 2.55-trillion-euro bond-purchase program.

The move was heavily anticipated by the market, but the strong pace of the US economy could mean more rate hikes. The latest projections from the US central bank now have 8 Fed official forecasting four rate hikes in 2018. The USD gained as soon as the projections and the rate announcement were public, but there was a sudden retraction when the news of the Trump administration moving forward with tariffs on Chinese goods that could come as early as Friday. Fed Chair Jerome Powell was asked about his view on trade during the press conference following the FOMC statement but he choose to sidestep by mentioning that the Fed does not seek to play a role in trade policy.

Britain's pound declined against the dollar on Wednesday as inflation data failed to bolster chances of an interest rate increase in August with markets wary about headlines on Brexit negotiations. Consumer price inflation held at an annual rate of 2.4 percent in May, its joint-lowest since March 2017

 

Today’s Focus

  • EUR ECB Interest Rate Decision, Harmonized Index, ECB Monetary Policy Statement and Press Conference
  • USD Jobless Claims Report

Today’s Market

Now attention turns to the European Central Bank. The Governing Council meets on Thursday. No change is expected but the statement and Draghi’s words could have a significant impact on expectations and on the euro.
Trade tensions continue looming in the background after German Chancellor Merkel said the US has a surplus when counting services.
Ahead, the top event risk is the European Central Bank rate decision. Of the three major central bank rate decision this week, the ECB's arguably represents the bigger event for its own currency and can leverage a greater sway over speculative trends than the Fed's actual move to tighten. It may seem counterintuitive at first blush that a high probability hold in policy can lead to greater market response than a realized hike; but when we consider the market's penchant for looking ahead and the influence of changing tides for broad risk trends, the potential for the European authority is easier to understand