Perhaps the Federal Reserve can justify a rate hike given sluggish inflation, one may argue the ECB will not put their sole focus on inflation. Unemployment continues to fall in the Eurozone while investors are seeking more information as regards tapering. Mario Draghi the Chairman of the ECB insisted that it’s not tapering while the ECB stand ready to inject more stimulus if necessary. But why is the Fed clearing looking to normalise while the ECB less directed perhaps? It comes down to expectations, eurozone price setter need to be informed that the ECB stand ready to “use all tools necessary” to get inflation towards 2%.
Therefore, if inflation turns negative, the ECB policy members will be ready to accommodate. Of course, expectations plays a major role for the Federal reserve also, particularly following the crisis and is instrumental in their forward guidance policy. The message is clear from this market analyst, keep looking for incoming data, not just for daily movements but how respected central bank will perceive it and how they will act on it. Unfortunately for Euro traders, Mario Dragi is not expected speak about policy plans at Jackson Hole, a Spokesperson insisted that policy messages will held off until Autumn. Investors should focus on inflation data which is to be released on Thursday, a good reading would suggest that tapering is more likely in September.
US Retail sales surpassed expectations which adds to the mix of negative and positive data recently, unemployment data being positive while inflation is lagging, but what’s new about that? Granted, Janet Yellen wouldn’t regard retail sales as part of the policy mandate however it does give more hope to a live December meeting. Building and Housing data is in focus today, a strong reading would usually be bullish for the greenback. The Federal Reserve will release the minutes of the last FOMC which allows investors to gauge what was discussed and plans for future policy. The Fed are looking to wind their holding of bonds “relatively soon”, investors seek strip out the ambiguity in this message following the release.