Fed rate decision today
The euro and sterling are trading at around $1.14 and $1.33 against the dollar respectively ahead of today’s Fed interest rate decision, off lows yesterday of about $1.1355 and $1.3275, while EURGBP continues to nudge higher to trade at around £0.8570 this morning. The market is pricing in an almost 30% chance of a 25bps rate increase from the Fed today, which is quite high this close to the decision. A hike would still be a “shock” to markets though and would almost certainly see the dollar spike higher quite quickly and quite sharply. A “no change” outcome might provide a modest boost to markets but is unlikely to have much of an impact on the US currency, as expectations that a rate hike will come at the next meeting in September are likely to remain largely intact.
Government bond yields in the main markets edged lower yesterday as oil prices continued to head south, although the latter are creeping higher this morning after unilateral missile attacks by Iran overnight. Yields fell by 3-6bps across the curve with UK gilts outperforming slightly on the day. In equity markets, European stocks chalked up modest gains (the Stoxx Europe 600 added just shy of 0.5%) while US indices had a mixed session with the Dow Jones closing around 1% higher but the Nasdaq ending marginally lower. The Nasdaq is now down around 8% since setting an all-time high in early June.
Consumer confidence in the US dipped in July according to the Conference Board’s measure, more or less reversing a modest improvement in sentiment recorded in June. The Conference Board notes that “consumer appraisals of current business conditions and, to a lesser extent, perceptions of the current labour market both softened” this month, while looking ahead, “consumers anticipate little improvement in business conditions over the next six months, but expectations for the labour market were slightly less negative.”
The Fed’s rate decision is the main focus for markets today. It is very quiet in terms of economic data with mortgage lending/approvals (June) in the UK and the ECB’s latest Wage Tracker indicator the only releases of any note.