FED DECISION LOOMS LARGE FOR INVESTORS
Wednesday will be an active day for the global financial markets, as investors assess the latest policy verdict from the US Federal Reserve. Although a rate hike is a “virtual lock,” the official statement could provide clues about the Fed’s mid-term outlook on monetary policy.
The UK’s Office for National Statistics will begin the European session with a high-profile employment report, which is due at 09:30 GMT. The number of Britons filing for unemployment benefits is forecast to fall by 5,000 in February.
An ILO calculation of the UK’s unemployment rate for January is forecast to read 4.4%, unchanged form the previous month. Meanwhile, average hourly earnings including bonuses are expected to nudge up 2.6% annually in the three months through January.
Shifting gears to North America, the US Commerce Department will report on the Q4 current account balance at 12:30 GMT.
The National Association of Realtors (NAR) will release a report on existing home sales at 14:00 GMT. The sale of previously-owned homes is forecast to rise 0.5% in February after dropping 3.2% the month before.
A report on crude inventories courtesy of the US Energy Information Administration (EIA) will also make headlines at 14:30 GMT. Crude stocks are forecast to rise by 3.182 million barrels in the week ended 16 March.
The Federal Open Market Committee (FOMC) concludes its two-day policy meeting on Wednesday, with an official rate statement due at 16:00 GMT. There is a 94.4% chance the federal funds rate will rise to 1.75% from the current rate of 1.5%, based on the latest Fed Fund futures prices provided by CME Group.
The official rate statement will be accompanied by a quarterly summary of economic projections spanning GDP, unemployment and inflation. The central bank’s “dot plot” summary of interest rate expectations will also be presented.
Currency traders will be on high alert for the official press material, with US dollar pairs most susceptible to large swings.
Europe’s common currency plunged on Tuesday as the Fed’s two-day meeting was underway. The EUR/USD exchange rate fell 100 pips to the 1.2250 region. It was virtually unchanged overnight as traders looked ahead to monetary policy.
The USD/CAD held steady on Tuesday but has since declined 0.3% to 1.3030. Even with the drop, the Canadian dollar remains under pressure on a number of fronts, including NAFTA negotiations, rising US interest rates and a dovish Bank of Canada.
After challenging one-month highs, cable fell on Tuesday to trade in the low 1.4000s. It was little changed in early Asian trading. Multiple catalysts in the form of UK employment data and US monetary policy will determine the trajectory of the GBP/USD exchange rate on Wednesday.