The U.S. Dollar stayed in familiar ranges throughout earlier trading sessions as markets remain relatively quiet ahead of what will be a busy central bank Wednesday. Both the Federal Reserve and the Bank of Japan will announce decisions tomorrow with BOJ making their statements 12 hours ahead of the FOMC. Bonds traders are very sure the Fed will not hike, pricing in a 24.0% chance of monetary tightening.
Surprisingly enough, BNP Paribas and Barclays, two major dealers for the Fed, are placing bets on the Federal Funds Rate being increased tomorrow. Spokespeople for both organizations argue that Yellen already hinted at two hikes for this year and see Wednesday as a perfect opportunity to stay on the gradual increment path. Speculations of a hike and resilient labor data have aided the greenback in recouping August losses by 2.0% since the month started.
The Euro resisted falling despite poor economic data out of Germany highlighting deflationary pressures. German Producer Price Index dropped by 0.1% in August, making it a 1.6% decline year on year.
The European Central Bank has been concerned with the slow progress in the general level of prices following an aggressive stimulus package earlier this year. Things may likely be quiet prior to the Fed’s decision, but we feel policy divergence and mounting political pressure will start weighing heavily on the euro for the rest of 2016.
Pound sterling is now trading at its weakest level in over a month after officials representing Eastern nations in the European Union spoke against an easy deal for the UK to remain part of the single European market. Britain and its leadership are finding out just how difficult negotiations will be to depart from the EU while maintaining a serious stake in the shared continental market.
The leaders of countries such as the Czech Republic are very much against a deal curbing immigration regulations for the U.K. and do not agree with British participation in free economic enterprise. Prime Minister Theresa May believes all the nations will come to an agreement. She wanted to stay in the EU.