Market Drivers for September 17, 2015
Europe and Asia:
CHF: SNB keeps rates on hold
GBP: UK Retail Sales 0.2% vs. 0.2%
North America:
USD: Housing Starts 8:30
USD: Philly Fed 10:00
USD: FOMC 14:00
Major currencies remained in a relatively tight range ahead of the key event of the week as traders squared up awaiting the FOMC decision due at 1800 GMT today.
The only economic release of note was the UK Retail Sales number which printed pretty much in line at 0.2% gain. Sales were boosted by clothes as back to school season drove spending, but gains were offset by decline in energy prices as the price deflator declined to -3.3% versus -2.9% the period prior.
Given the surprising rise in average wage gains reported yesterday, the true measure of UK consumer strength is likely to come in the next few months as Christmas approaches. If spending does increase markedly, that would provide support for BOE normalization measures and should prove bullish for cable.
The unit continued to enjoy relative strength today, basking in the afterglow of yesterday's better than expected labor data, and should the Fed surprise and hike rates, may see the least amount of selling on the assumption that BoE would be next to hike. Indeed, one of the stronger trades, should the Fed hike unexpectedly, could be GBP/JPY as the pair is likely to benefit from USD/JPY flows and the relative strength of cable.
The consensus view however is that the Fed will remain stationary, with Fed funds futures only forecasting less than a 50% chance of a hike today. Just a few weeks ago—when Chinese equities were tumbling by 5% a day—the prospect of a Fed hike looked highly unlikely, but global equity markets having settled down, the Fed may want to get it over with and move off the ZIRP standard.
Even if the Fed does hike rates, it is almost certain to communicate that it will not do so again for at least 6 months as it allows the markets to digest the first monetary tightening in more than 7 years. The move today, if it does occur, is therefore going to be more symbolic than economic in nature, as FOMC officials look to take back control of conventional monetary policy tools. Whether today will be the day they choose to do so remains to be seen.