We looked yesterday at how the markets might react to today’s UK Budget, a critical one from a political point of view being the last one before the General Election, but when it comes to the financial markets investors are going to be focusing on the Federal Reserve’s meeting and statement later this evening. Ahead of then attention will be given to unemployment figures for the UK and the latest BOE meeting minutes so sterling is certainly going to be a focus throughout the day but the main event is FOMC.
The debate has been raging as to whether the word “patience” will stay or go and if its removal means interest rate hikes are due to commence this summer. When you look at the recent economic data from the US the wording used by Janet Yellen becomes almost irrelevant as its the data that’s the main determinant of the future path of interest rates and markets are pricing in a hike later in the year. The fundamentals don’t look strong enough yet to warrant monetary tightening, with deflationary pressures from not only lower oil prices but a higher US dollar. This makes it difficult for the Fed to justify moving in June, but this also doesn’t mean the word “patience” will remain. Either way prepare for a potentially volatile day ahead.