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  • richard evans

Fed set to reduce asset purchases, will interest rates rise soon after?

Good morning

For this week, US data releases will be one hour earlier at 12.30 or 14.00 london time due to the clock changes.

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

US clocks change this weekend, we’ll be back to normal on Monday

Once again US and EU markets were generally stronger, but most Asian markets have traded weaker overnight. The key today is of course the long-awaited Fed meeting where we are expecting to see an announcement that confirms tapering will begin, with an end in the middle of 2022. Can the Fed do this without sending USD higher, that’s the main question for me. It seems reasonable now to think Fed rate rises are coming sooner than had been expected a few months ago, we have seen a stronger dollar over the past few months as a result so perhaps this is priced in to a degree.

The Fed will be eager to separate tapering from rate rise talk although I can’t see how they can really do this, we all know rate rises will follow tapering at some point. A reduction of asset purchases of US$15billion/month is expected, any more than this would perhaps indicate the Fed is willing to act quicker which in turn may lead to rate rise expectations being brought forward. Any mention of inflation risks could also affect USD.

US dollar has held onto recent gains ahead of the meeting with EURUSD at 1.1585, GBPUSD 1.3615 and EURGBP 0.8510 (GBPEUR 1.1750). We do have BoE rate announcement tomorrow and key US nonfarm employment numbers Friday, I can’t remember when we last had such a chance for market event risk and volatility.

It has been reported that China urged its citizens to stockpile food and essentials amid worries of a supply shortage and volatile pricing. As you’d expect this triggered something of a panic which the government then tried to play down the advice, saying it was only to be prepared in case of a lockdown. Covid case numbers remain low but are certainly on the increase in this latest outbreak and we know China can introduce hard lockdowns at a moments notice.

Poland central bank have a rate meeting today, I think its likely to be between 11am and midday although timing isn’t certain. They are expected to raise rates from the current level of 0.5% after a 40bps rise last month. A 25bps rise looks possible but I have seen some talk it could be 50bps, and some suggestions we could see a rise of 100bps. Unlikely, but enough to keep us on our toes. EURPLN currently 4.6000.

I popped outside yesterday even to be greeted by a wall of seriously cold air. I awoke this morning to find a healthy layer of frost. Winter seems to be here, although the forecast seems to suggest overnight temperatures will warm up again in the coming days. I have to admit its been a while since I’ve really been out in such cold weather, I guess the lockdown in Jan/Feb this year meant many more evenings were spent indoors than going outside. Football training this evening, must remember to pack gloves. And hat.

- 09.30 UK markit services PMI

- 11.00 Poland rate meeting

- 11.15 ECBs Lagarde speaks

- 13.15 US ADP employment

- 13.45 US markit services PMI

- 14.00 US services ISM, factory orders

- 18.00 Fed rate announcement

- 18.30 Fed press conference

- 01.30 AUS trade balance

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