European and U.S futures are trading lower today as investors have reacted to the Fed’s firm stance towards their monetary policy and the growing weakness in the Chinese economy. From the FOMC minutes released it was clear that the industry should be expecting another rate hike in December. In other words, a rate hike is engraved on the cards no matter what. The question only is if we are going to see three rate hikes for the next year or if the Fed would be even more aggressive. The dollar index is clearly the beneficiary of this and it has picked up some steam. The index is trading at 96.78 and I think that it is likely that it may touch the level of 97.20.
The Fed confirmed that the U.S. economy is strong and robust. The economic data is due today it could serve as a catalyst for the dollar index continue to be moving higher. We have the core PPI m/m, PPI m/m and Prelim UoM consumer sentiment data due later today. No change is expected in the PPI and core PPI number as the forecast is for 0.2% which is the same as the last month. The consumer sentiment number may show some weakness due to the ongoing trade war and it may print the number of 98.0, which is a little weak as compared to the previous number of 95.6.
Closer to home, it is all about if the U.K can strike a deal with the EU and this would be the major trendsetter for the pound. Fund managers have clearly shifted their stance towards the currency and they have become a lot more bullish. They anticipate that it is likely that the currency could see some strong days in the coming weeks. So far this month, we have already seen a 3 percent rally in the pound. Hopes are high that Theresa May may be able to strike a deal with the EU as early by next week. She has started to brief her team on the almost-finished deal, But if her deal is rejected in the parliament then it may be just the best option for the UK to throw the towel on the Brexit hope and just stay in the EU. One can never factor out this scenario and that itself would be highly positive for Sterling.
In terms of economic data, we have the UK’s 3Q GDP data due at 09:30 and the likely chances are that this number may confirm that the UK’s economy experienced a temporary growth. Remember during the Q2, it was the services sector which pulled more weight on a month on month basis and the construction sector also provided some support for the GDP. However, the monthly data also confirm that the number may not remain this hot during the fourth quarter. But, this could change if the U.K is able to strike a deal with the EU. Remember if that happens, then we must expect the bank of England to play an aggressive hand and the interest rate in the U.k could start moving higher steeply. A Good luck to those who are trying to jump on the property ladder.