Yellen To Testify And Three Things Matters
All devotion would be on Janet Yellen's testimony and investors are going to focus on three major areas and that would drive the trend for the dollar. The most vital factor is the subject of the balance sheet. Investors would like to know what the Fed Chairwomen has hidden under her sleeves. The market is expecting that the Fed would declare something in September in relation to reducing the size of the balance sheet. Secondly, how many more interest rate hikes are on the table for this year and if the path of the interest rate hike would also be steeper next year. Finally, the future for the Fed committee after Yellen leaves the office and what route her successor would adopt in relation to the labour market.
These are going to make the bed for today's testimony and Yellen would need to be subtle in her approach. We trust the ultimate desire is to dodge any roller coaster ride for the market. One question which would be worth raising today is if the Fed has any backup plan if the market starts to derail given that the Fed would be tightening up the screws on both sides of their monetary policy? By looking at the dollar index, it becomes evidently clear that investors are expecting more interest rate hikes for this year but they do question the matter of reducing the size of the balance sheet.
UK Wage Number Could Quell Hopes For Interest Rate Hike
Back in the UK, the pound has not recovered from its heavy blow from the Bank of England's chief economist Andrew Haldane and deputy governor Ben Broadbent. Both were extremely pessimistic about sterling and traders took no time in taking the advantage of that situation by pushing the currency lower. The question for today is if we are going to recover any of the losses or if the trend is going to pick up more steam.
It all depends on one important economic reading which is due this morning. It is the UK wage data where everyone has their eyes on. The question which you may want to ask yourselves is what would be the future for the UK's economy if wages do not start to pick up? It has already taken a very bad toll on consumer confidence and on the recovery which was led by consumers. Last month's reading confirmed that wages are not keeping up with inflation, and the Brexit situation is making things even direr. Under this situation, the consumer confidence would continue to roll over and economic health would fade further.
Having said that, we are expecting the wage number rise to 1.9%, we know that it would be still well below the inflation number. But the hope is that over next few months this gap would be full filled. If the number deteriorates even further, it would quell the chances for any interest rate hikes in the near future.
Crude Oil Eye Inventory Data
Crude oil gathered attraction amid traders in hopes that the crude inventory data which is due today would show drawdowns. The API number released last night brought some good news for traders by showing some aggressive decline in stockpiles. However, it is important to keep in mind that oil is still in the bear territory due to concerns over a supply glut.
The EIA has also reduced its estimate for 2018 for the US production to be below 10 million barrels a day. This is an encouraging sign as this was the first time that we have seen the agency cutting its production forecast for the US production. Nonetheless, traders are not going to turn deaf ear to the Saudi Arabia’s oil production which told OPEC that the production has gone above its limit which was established during the agreement.