21/09/2017 - Fed Plans One More Hike

USD

The dollar pushed higher overnight after the  U.S. Federal Reserve announced a plan to start shrinking its balance sheet and signaled one more rate hike later this year.

As expected the Fed said it would begin in October to trim its massive holding of U.S. Treasury bonds and mortgage-backed securities acquired in the years after the 2008 financial crisis.

The Fed indicated it still expects one more interest rate hike by the end of the year, despite a recent bout of low inflation, but ratcheted down its long-term interest rate forecasts.Fed fund rate futures are now pricing in about a 65 percent chance of a rate hike by December compared to around 50 percent before the latest meeting. 

GBP

UK retail sales grew by 1% in August compared with the previous month, with sales of clothing and non-essential items posting strong growth.

The ONS also said that compared with last August, sales volumes were 2.4% higher this year and the 52nd month in a row that sales have risen.

Prices for non-food sales had risen at their fastest rate in 15 years. These strong inflation figures have largely been fuelled by higher import prices as a result of the weakened pound after the Brexit vote last year. While wages are failing to keep pace with inflation, more people are in work than at any time since the mid-1970s. Economists fear that households are using debt to keep on spending amid the squeeze.
 
There was more downbeat news however, coming from a BoE survey which showed no sign that wages were likely to grow much more quickly, tempering a jump in sterling. OECD meanwhile, said uncertainty about Brexit meant Britain next year will suffer its slowest growth since the financial crisis. This contrasting data provides a huge challenge for the BoE amidst the political and economic uncertainty.

Key Announcements

 
13:30- USD: Continuing and Initial Jobless Claims

13:30- EUR: ECB President Mario Draghi makes a speech