Daily Market Update

U.S. Dollar steadies as Fed prepares for expected third hike

September 26, 2018

The U.S. Dollar is in good standing ahead of the Federal Reserve meeting today at 2PM, an event that is expected to result in the third interest rate hike of 2018.

Overview

Anything instead of this occurrence will be considered a major policy surprise and could sink the greenback. Very close attention will be paid to the Fed’s tone on trade tensions and its effects on the economy and also the hinting of a fourth hike in December. Anything the Fed says regarding worrisome items could negatively impact the dollar regardless of the hike going into the effect. Tight monetary policy seems to have lost some steam lately as a driver of buck strengthening since higher interest rates have been priced-in by traders.

Chairman Jerome Powell will hold a press conference immediately after the announcement, thus we expect major swings in the afternoon as the world digests his take on things, which most observers and analysts expect to be positive. If indeed Powell sounds doubtful, the greenback will concede ground. We are of the belief that Powell will point at the economy and merit hikes now as well as going forward. While this may not help the dollar, it will keep it from depreciating as we close the month.

EUR

The Euro fell slightly ahead of today’s main risk event following growing anxiety within EU rank officials. While Germany and its chancellor Angela Merkel have been nicer to U.K.’s PM Theresa May regarding Brexit concessions, the French under Emmanuel Macron are fuming with anger over the “easy” deal that is being handled with Britain.

French Finance Minister Bruno Le Maire called giving the U.K. an easy break “suicidal.” We agree that EU sustainability is at stake and that these talks have become prolonged delay of the inevitable: an economic calamity for the continent that will take a lot of years to fix.

GBP

The Pound is no longer rising aggressively with news in the U.K. of major opposition to May within and outside of her political party. Her main rival, Labour Party, concluded their conference in agreement that no one in parliament should accept or approve any Brexit deal brought to the table by the Prime Minister.

Quarter 4 of this year will test the waters as the U.K. readies to meet an unprecedented deadline with an unprecedented deal, which will most likely not be sufficient to improve talks of an eventual trade deal after the divorce. Brexit is a mess and the year’s end will be crucial to finding out if there is a solution or just more trouble ahead.

 

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