Global Themes

On Thursday evening at 19:00 the Federal Reserve will make its latest decision on interest rates, with investors and economists extremely divided on whether the US will finally raise rates. Since June, this September 16-17 meeting was highlighted by experts as the ‘most likely’ time for the Fed to begin tightening as US economic growth gathered steam over Q2.

However, China’s stock market crisis and major FX interventions have raised concerns about the strength of global growth, leading many investors to believe the Fed will choose not to make a move this week. With interest rates the most important driver of currencies, and the Fed the most important central bank globally, Thursday’s announcement is expected to be a major trading point for the US dollar, Pound and Euro

USD

The US dollar lost around 2% against both the Euro and Pound last week as traders nervously expect no US rate hike this week. On Thursday at 19:00 the Fed will make its highly anticipated policy decision and release its latest economic forecasts. Policymakers will also release their individual interest rate predictions, the so-called ‘dot-plots’, which will give traders a clearer view on when and how many times the US could raise rates in the next 6 months. If the Fed do decide to hike this week, the cost of buying US dollar could spike very sharply.

CNY

Data this weekend from China uncovered more weaker-than-expected news, keeping alive the prospect of more emergency action from China as the country’s economic slowdown continues. Last week China launched a major overnight operation to boost the value of the Yuan and stop FX traders from betting on further Yuan losses.

EUR

The Euro could set its sixth straight day of gains against the US dollar today - a rally of over 2% ahead of this week’s all-important US interest rate decision. Tomorrow’s German ZEW Index will be published at 10:00 and this could be a key test for the Euro. The Index is forecast to drop from 25.0 to 18.5 with investors worried about the negative impact of China’s economic slowdown on demand for German exports.

CHF

The Swiss National Bank is widely expected to make no change to its negative interest policy when it makes its once-a-quarter policy decision this Thursday at 08:30. On September 17, the morning before the all-important US rate decision, the SNB is likely to keep rates at -0.25% and its bank deposit rate ‘tax’ at 0.75%. Switzerland narrowly avoided recession in Q2 and the Swiss franc's recent losses mean the SNB is under less pressure to take aggressive franc-negative action. Last week the franc lost 2% and fell to 8-month lows against the Euro.

GBP

Sterling remains stuck near 3-month lows against a strengthening Euro despite last week’s positive Bank of England news. On September 10th the BOE made no changes to its record low 0.5% bank rate but policymakers ‘suggested’ that China-led market volatility in recent weeks will not unravel plans to raise UK interest rates in 2016. CPI Tuesday at 09:30 tomorrow is expected to show that UK inflation dropped back to zero percent in August before Wednesday morning’s more influential UK labour market data.