Central Banks in Focus in a Busy Week

The FTSE 100 has taken its lead from a record closing finish in the US on Friday and a strong session over night in Asia. As the central bank heavy week gets underway, the FTSE is trading over 0.5% higher as it heads convincingly for 7450.

The FTSE 100 has taken its lead from a record closing finish in the US on Friday and a strong session over night in Asia. As the central bank heavy week gets underway, the FTSE is trading over 0.5% higher as it heads convincingly for 7450. 

Fed to hike by 25 basis points 

First up will be the US Federal Reserve which is due to give its money policy decision on Wednesday. The Fed is broadly expected to raise interest rates, by 25 basis points for the third time this year. Given that the hike is already over 98% priced in, it is highly unlikely to move the market when it happens. 

Instead, investors will be paying close attention to the pursuant statement, growth forecasts and press conference, in an attempt to gauges the continued path for rate hikes in 2018 and whether the path is being impacted by the lack of a resolution to the Fed’s inflation mystery. Despite the US being close to full employment, the average hourly wage refuses to moves towards the 3%-4% which the Fed considers healthy and inflation refuses to budge towards the Fed’s 2% target. 

The dollar gained ground each session, versus a basket of currencies last week, as investors cheered strong data, an expected rate rise and the prospect of the US tax reform bill being pushed through before the end of the year. Although the dollar index has slipped back slightly on the open, it still has 94.00 firmly in its reaches. 

BoE & ECB 

The Bank of England and the European Central Bank are both due to give their policy decisions on Thursday. Neither is expected to raise interest rates. The Bank of England could show some unease over the persistently high levels of inflation, which may cause investors to increase their odds of a rate hike next year. 

UK Inflation data is due on Tuesday, and could potentially lift the pound, should it show that inflation may not yet have peaked following the Brexit referendum last year. 

Too short a time frame for a Brexit Trade Deal? 

Central bank policy aside, politics could continue to drive the pound. After the big news last week that the EU and the UK have agreed a Brexit divorce bill, the pound has actually sold off, in a classic buy the rumour sell the fact trade. The sell off has continued into the new week as the markets are growing increasingly tense that it just won’t be possible to complete a trade deal between the EY and the UK in the short time available before March 2019. 

No trade deal could mean a very uncertain start to Brexit, which could be detrimental to Britain’s economy and the pound. Sterling is trading just 0.1% lower versus the dollar. Investors will look towards inflation data and employment and wage data at the beginning of the week. Encouraging signs could see investor look once more to push sterling to $1.34. 

Bitcoin 

Today, the virtual currency will enjoy its first full trading day on the CBOE futures exchange. So far trading has started slowly, despite a lot of hype and anticipation in the run up. In true bitcoin style the price was up $1960 to $17,420 in early trade, however volume for the contract was slightly low, perhaps to be expected given the short notice period for the start of the futures contract.

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