Groundhog Year?

July 28, 2016

The Fed statement gave the briefest of lifts to the dollar, but this proved to be short-lived. The statement had the near-term risks to the outlook as being diminished and one member voting for higher rates (George). There has been some talk of a rate hike as early as September, but the market is not yet pricing that in, with only around a 25% probability of a hike in the September meeting. Still, we will have to watch the data and rhetoric carefully in the run up. The Fed has been caught out once too often in leading market down the wrong garden path and would be well-advised not to do the same again.

The single currency has benefited in the past two sessions, moving above the 1.11 level in early European trade. This is probably more a move by default, meaning more to do with the unattractiveness of other currencies, rather than the attractiveness of the euro itself. EURJPY has bounced off the 115.00 level as a result of the better euro tone and this level will be worth watching ahead of the BoJ meeting overnight, where expectations are for the BoJ to deliver further stimulus on top of the fiscal stimulus already promised. The yen has been on something of a roller-coaster over the past few days, between the 104.00 to 107.50 levels on USDJPY.

For today, it feels like we are going to freewheel into the end of the week. The impending BoJ meeting gives sufficient reason to hold back, whilst stocks appear to have run out of steam, having pulled back from the recent highs. The data calendar is restricted to German inflation data at 12:00 GMT, together with the usual weekly claims data in the US.

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