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Markets await Federal Reserve interest rate decision.

By Jake Trask

Sterling has risen over the past 24 hours as Brexit chatter quietens down and markets were reassured by comments from UK Prime Minister, Theresa May that the country was not heading for another general election. The PM stated it would “not be in the national interest” to hold an election before the UK exits the EU at the end of March next year. Given how disastrously events played out for the government when May called a snap election last year the comments were hardly surprising however this and an absence of further negative comments from the EU side have bolstered the pound since Fridays dive. There is no data of note today from the UK so Brexit comments and this evening’s interest rate decision from the Fed will be the main drivers for sterling. GBP/USD hovers around the 1.3170 handle.

As mentioned earlier, this week’s big news is the interest rate decision from the Federal Reserve’s, Federal Open Market Committee with a 25bp hike to 2.25% all but guaranteed from policy makers. With rates set to move higher all the focus will be on the accompanying statement, economic projections and press conference from Fed Chair, Jerome Powell to see if anything can be deciphered over future moves from the Fed. Markets still expect another move to 2.5% in December however next year’s policy path is less clear and should Powell acknowledge US President, Donald Trump’s aggressive trade policy may cause a headwind to growth in 2019 then we could see a move lower for the greenback. We find out after 7pm tonight. USD/JPY fell short of 113 overnight currently trading at 112.79.

It’s been a quiet week hitherto for the shared currency with tonight’s Fed rate decision the event that could force EUR/USD out of this week’s relatively tight range. Away from Washington there are a couple of events to keep an eye on as we head to the weekend. First up tomorrow is a speech from Mario Draghi in Frankfurt at the annual conference of the European Systemic Risk Board, then on Friday we have inflation numbers for September from the Eurozone. With Mario Draghi commenting on Monday that he sees pipeline inflationary pressures building the number will likely come under more scrutiny than usual. EUR/USD is at 1.1765 and GBP/EUR sits at 1.1180.

It’s dead as a doornail this week from Down Under with no major data due or RBA members set to talk. The Fed rate decision will direct the Aussies direction from this evening onwards and drive sentiment for the rest of the week/month. AUD/USD trades at .7255 with GBP/AUD at 1.8135.

The loonie has stayed put for much of the past 24 hours, trading in a tight range ahead of tonights policy decision from Washington. As mentioned yesterday, Friday sees GDP data from Canada with a slight uptick of 0.1% expected m/m. Bank of Canada chief Stephen Poloz is set to deliver a speech tomorrow at the Atlantic Provinces Economic Council dinner. USD/CAD is at 1.2955 with GBP/CAD at 1.7050.

This week also sees an interest rate decision from the Reserve Bank of New Zealand with Governor Adrian Orr likely to hold rates at 1.75% for the 13th consecutive meeting. NZ Prime Minister, Jacinda Ardern made her debut at the UN yesterday, giving a speech at the Nelson Mandela Peace Summit. It was the appearance of her three month old daughter Neve which drew the most attention however. The PMs partner Clarke Gayford cradled the baby girl throughout the speech. USD/NZD is at .6660 with GBP/NZD at 1.9755.