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Inflation still a concern for FOMC

Markets interpreted last night’s FOMC statement as an admission that a December rate hike is still very much a possibility allowing the dollar to bounce and overnight Asian equities have weakened meaning a softer open for indices is expected in Europe. On the back of the statement EURUSD fell sharply taking it back below 1.1000 for the first time since September and this morning it trades at 1.0940 with the next major support seen at 1.0800, where if we see a break below we are likely to see an increase in calls for parity. Between now and year end makes the economic data all the more important as to whether the Fed does actually commence tightening in December and we see the penultimate nonfarm payroll of 2015 next Friday where a figure of 177k is expected, still less than the desired 200k, but up from September’s 142k. As we discussed in yesterday’s note inflation is still a big worry for the Fed and whether in two years time it will be back towards their target as interest rates are on the rise. On balance I still don’t expect a rate hike from the Fed this year.

Today sees business and consumer sentiment from the Eurozone where a weak reading could put further pressure on EURUSD, but the main focus is US GDP data released at 12.30 GMT. Overnight the an interest rate decision from the BOJ could also provide some volatility ahead of tomorrow’s last session of the month.

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