FX Update – September 18 – FOMC Day


The USD is slightly higher going into the Fed announcement with cautious tones across forex, bond and equity markets as investors wait for the FOMC announcement today. AUDUSD and NZDUSD are relative outliers in showing respective declines of 0.2% and 0.3% at the London interbank open. USDJPY has maintained a narrow range in the lower 108.00s and EURUSD around the 1.1065-70 mark, capped at 1.1075 and consolidating after rebounding yesterday from Monday’s bout of dollar-driven losses. The Dollar itself had attracted a safe haven bid in early-week trading as markets reacted to news of the drone attack that took out about half of Saudi oil production and distribution facilities, though this petered out as oil prices staged about a 50% retracement of the surge seen on Monday (which was the biggest one-day rally in over a decade ), catalyzed by a report that suggested that production could be restored much faster than initially feared. Another factor that saw the Dollar bid weaken was the Fed’s $75 bln injection into the financial system. Markets are now looking to the Fed’s policy announcement today, where expectations are for a 25 bp cut and communication that pegs the move more as a mid-cycle adjustment and less as a second cut in a protracted easing cycle. The BoE and SNB are due to make policy decisions tomorrow. The BoE is likely to be a non-event, with no-change widely anticipated. The SNB is also expected to maintain unchanged policy.

On the Brexit front, the UK Supreme Court is hearing the government’s appeal on the ruling from Scotland’s highest court that the government’s suspending of parliament was illegal. A decision is expected tomorrow or Friday. Most likely, although not a certainty, it will agree with the recent court rulings seen in England and Northern Ireland, that the matter was “non-justiciable” — being political rather than a legal matter. If the appeal is successful, it is still not clear if the UK Parliament will be recalled or if the government will prorogue proceedings for a second time.


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Stuart Cowell

Head Market Analyst

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