We saw the dollar recover well from Monday’s losses yesterday with the market positioning itself for a more Hawkish outcome to this week’s Federal Open Markets Committee meeting. The Dollar Index is currently trading around 90.40, it’s highest level in the last couple of weeks. A rate hike is pretty much locked in for the market so the focus will be on the tone of the policy statement and with the make up of the 2018 committee more Hawkish than the 2017 committee the market is hedging it’s bets on a higher median of the ‘dot plot’. We have seen this trading pattern in the past before Fed meetings and once again if the Fed comes out on expectation or in any way more dovish the we should see a downside correction to the greenback in the short term.
Elsewhere in the markets last night we saw continued pressure on tech stocks as Facebook remained under the microscope but the rest of the market recovered well from Monday’s sell off. Talk that President Trump is looking to hit China with $60 bio (twice the previously rumoured amount) in tariffs by Friday has heightened fears of the potential trade war although the market has been relatively resilient in it’s reaction so far.
In the UK, worse than expected CPI data was well absorbed by the market as positive Brexit sentiment continues to dominate the market and sterling flows, although this will be brought into calculations ahead of Thursday’s BOE announcement.
Looking ahead to today’s trading and it is all about that Fed Announcement and Policy Statement towards the end of the US session. We expect the Asian session to be relatively quiet with the Japanese on holiday and a very quiet data calendar. Into the London session and the market will briefly shift it’s focus back again to sterling and the release of the Employment data before it gets back into it’s pre Fed trading mode.