Tuesday, July 28, 2015

It’s US Fed day today | … but Bank of England could be out of the blocks first with interest rates

Later today the US Federal Reserve will present its latest monetary policy statement. This is a key event in the Forex calendar and one that is always likely to give rise to sharp short-term volatility, which is why Mandelbrot stands aside on this day.

The statement will be closely examined by market participants for any hint as to the timing of US interest rate rises, which have implications for US dollar strength. Clues from the Fed on this question have been ambiguous, with some indication earlier this year that we might see a start to a gradual rate rise pattern around now, but this has failed to materialise. In the meantime the members seem to be almost as much concerned about events that are external to the US as they are to the domestic situation, with Greece previously, and now China, up front and centre. Caution seems to the watchword, but any indication that inflation might be about to take off will galvanise them into action.

Bank of England could be out of the blocks first with interest rates

On the other side of the pond, the British Pound has been consolidating of late against the greenback, and now has the aspect of a coiled spring, waiting for interest rate news from the Bank of England (see chart at top).

The UK economic situation has been quietly improving, with GDP figures the latest to show some strength. Mark Carney, the governor, and his team, have announced that they will be streamlining the release of information into the market, and this could have some bearing on the matter. Or perhaps not. Mr. Carney’s previous attempts at ‘forward guidance’ did not exactly have the desired effect, mainly because he discovered that no one, not even central bankers, can foretell the future.


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