The Week Ahead: US Interest Rates & EU Data

EU CPI will have significant impact this week.

The markets buoyant start to September could see some volatility this week when the US Federal Reserve delivers it’s decision on interest rate decision on Wednesday. Importantly, it’s expected to announce the beginning of balance sheet reduction.

Fed Not Expected To Raise Rates.

While another rate hike isn’t on the cards, future guidance and comments on inflation will be looked at closely for signs of further raises this year.

The impact of two devastating hurricanes will be closely scrutinized. Economists believe that up to two-thirds of a percentage point will be shaved off GDP, and inflation will temporarily increase. Just as the Fed saw July weakness in inflation as transitory, it will likely see this increase in the same manner.

Some commentators believe the Fed will soften its stance due to the impact of the storms. Considering how hawkish they’ve been this year, raising rates despite weak data, that scenario is unlikely. The US economy is performing well, and Yellen has a solid record of sticking with long-term projections rather than changing tune based on statistical outliers.

The market is currently pricing in a 50% chance of another rate rise this year. Those predictions could change after this Wednesday.

A Big Week For European Data.

Europe will see some significant data sets coming out this week. EU CPI is due Monday, a strong number could drastically impact the Euro and see if push up through the 1.2070 resistance level. The German ZEW number on Tuesday also has some economic significance, and should impact the Euro accordingly.

The GBP was on fire this week after the BoE signalled a shift in interest rate policy. Should Retail Sales numbers impress on Wednesday that fire will get some more fuel. Pre-Brexit lows of 1.3850 are in sight and clearly within reach.