Hot Topic – FOMC

Investors eyes are turned to Wednesday’s FOMC minutes release on July’s monetary policy meeting

• Everyone will be on the lookout for whether the comments are hawkish or dovish
• Last month’s meeting had some conservatively positive words “near term risks to the economic outlook have diminished”
• Analysts are expecting even more positive comments this time around on the state of employment and the economy
• Targets set by the Fed for an increase to interest rates include 2% growth in the economy, 4.7% unemployment rate and the PCE inflation rate at 1.7%
• Currently we have GDP tracking at 3.5%, the last NFP came in at 4.9% and June’s core PCE rate is at 1.6%.
• This is all good news for dollar bulls as they sharpen their horns.
• However, after disappointing retail sales and producer price data, some analysts are expecting the Fed’s wait-and-see approach to raising interest rates to continue
• So far this approach has been holding the dollar back, as has this recent disappointing data
• On Wednesday we’ll get a better indication on the committee member’s feelings towards a rate hike for this year, and positive comments may see the greenback streak ahead of its trading pairs
• Most other central banks are looking to ease rather than tighten monetary policy and this divergence of monetary policy around the globe will make for some lopsided forex markets – giving some great trading opportunities.
• The GBP/USD in particular will be interesting to watch as the Bank of England has brought in more quantitative easing.
• Last week the cable fell by 1.2% and since the Brexit referendum on 23 July its lost a massive 13%.

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