Ilya Spivak, Currency Analyst at DailyFX, comments:
“All eyes are on the FOMC monetary policy announcement. This time around, the statement following the sit-down will be accompanied by an updated set of official economic projections from Federal Reserve official and the first press Chairman’s press conference from Janet Yellen. An upbeat set of economic forecasts that belies a firm commitment to continued stimulus reduction couched in similarly-themed rhetoric from the Fed Chair is likely to put the disparity between the direction of US monetary policy and that of most G10 central banks in stark relief. Indeed, investors’ priced-in expectations show that only the RBNZ is expected to deliver greater cumulative tightening than the FOMC over the next 12 months. Such an outcome is likely to scatter doubts about “tapering” continuity and boost the US Dollar. Needless to say, worried rhetoric from the US central bank stands to yield the opposite result.
“Minutes from this month’s Bank of England policy meeting may put downward pressure on the British Pound if policymakers sound off on the recent soft patch in UK news-flow. Indeed, data from Citigroup shows economic releases began to notably deteriorate relative to expectations late last month. The latest revision of the BOE’s forward guidance framework stressed “absorbing spare capacity”, undermining the hawkish significance of crossing the 7 percent unemployment rate threshold set in August. Weakening performance and its acknowledgement by the central bank may push traders to speculate that this will delay interest rate hikes for a relatively longer period than currently priced in, pressuring Sterling downward.”