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Forex: Calm before a Fed storm?

The week has arrived where in a few days time we will see an end to the debate over whether the Fed is prepared to commence its tightening cycle this month or at a later date. There is still a minority that is of the view that the FOMC will announce a hike this Thursday, but it’s hard to see how a hike now will help investors given all that the financial markets have been though in the past few weeks, in particular emerging markets. The decision itself is arguably more important for the markets than anything else we’ve seen so far in 2015, namely the ECB’s launch of QE and near exit of Greece from the Eurozone, as this will be the first time the world’s biggest economy will see a tightening of monetary policy of nine years. It’s not just the US economy that will be affected and it’s no secret that emerging markets will see the knock effect as their currencies have suffered considerable weakness against the US dollar in recent weeks.

Today is quiet on the economic data front and investors seem content for now as we near Thursday’s decision, with European equities a little higher on the open. Data releases become more poignant as the week goes on with UK inflation data tomorrow a highlight where the Y on Y rate could dip back into deflation territory.

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