The US dollar still appears in a state of limbo; pulled one way by the negative ongoing government shutdown and another by a robust economy with attractive yields on the interest rate front. The pound has not been able to break out of the $1.27 handle since Friday afternoon, with $1.26 holding as firm support while $1.28 remains elusive on the upside. The situation is not too dissimilar with the euro; markets are awaiting the next big catalyst to decide whether there’s still value left in the long dollar trade or whether it’s time to explore different opportunities.
That catalyst may arrive today. The evening session hosts the release of meeting minutes from the Fed’s last gathering in December. Going back to this event, Powell’s performance was rather hawkish, while this didn’t lead to a huge round of buying for the buck it did create mass panic in stock markets, which consequently saw US indices shed nearly 7% the following week. As a result, it’s likely these meeting minutes carry a weighting. The market will once again be looking out for the usual – insight into prospects for the next rate increase and any new thinking on the Fed’s quantitative tightening program (selling the bonds they accrued across their almost decade long stimulus package). USD exposed clients be aware, tonight could be volatile.
Before today’s main event we’ll have a couple of other elements of risk to monitor. At 15:30 the Bank of Canada will make an interest rate decision. Rates in Canada currently lie at 1.75% and are not expected to change following today’s announcement. The devil will be in the detail with this meeting, many will be keeping a close eye on the tone Governor Poloz uses to determine whether any further increases are on the cards for 2019. Lastly, our Bank of England chief, Governor Carney, will be taking an online question and answer session. As we’ve come quite accustom to now, this will be a good opportunity for him to once again reel off his script of Brexit negativities. Please be aware if you’re exposed to the pound this afternoon.
Written by Viv Savani. 8:37am, January 9th 2019
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