Fed announcement to move quiet markets at 2PM

The U.S. Dollar returned to gains against British Pound and Swiss Franc, lost about half a percent to some commodity-based currencies, and stuck to its familiar ranges with Euro.

Overview

Markets are simply eager to see if anything substantial can come off of trade talks between China and U.S officials as they set to meet later today. For now, the MASCI Emerging Market Index is at its highest point in four months, with investors hoping that issues that have already been identified start being addressed, but failure to quell trade uncertainty could plunge current momentum.

In general, markets have not gained much traction. ADP Employment Report data suggested big growth in payrolls for January, but all eyes will be on the Fed’s Policy Decision Announcement later at 2PM. Fed Chairman Jerome Powell’s words on the Fed’s plans to reduce the balance sheet will be the most monitored. His take on whether the Fed will accelerate the shedding of QE-items or hold them longer will provide guidance on how dovish the Fed may be this year and if this will help in sinking the greenback, as we have forecast. We think he will indicate that the balance sheet unwinding does not need to get any faster.

What to Watch Today…

  • No major events scheduled for today.

EUR

The Euro tried climbing up, but merely erased some losses from days prior after European Central Bank President Mario Draghi told the EU parliament he sees no need to reconsider the return of easing measures. While the Euro-zone economy is lagging tremendously, central bankers want to continue their wait-and-see approach after the ECB finally caved into stopping any further injection of help to the financial system. German and French numbers certainly need to improve domestically, but the region definitely needs good news to boost morale as the concerns over Asian trade directly impact Europe’s ability to sell its exports abroad.

GBP

The Pound fell after yesterday’s historic Parliamentary session in which seven amendments to the Brexit approach were voted on. Only two passed, but overall it means the situation the U.K. is in is no different stage than before. Parliament could have taken control of the Brexit path, but that vote failed; a “no-deal” prevention commitment that would guarantee to markets Parliament would never accept leaving EU without some new pact, failed; an extension to the deadline for Brexit and a clause to help Parliament take over after a certain point if no deal in place, also failed.

Everything is in the hands of May, and the Labour Party said they will try cross-party conversations now, but the European Union is not going to re-negotiate what has already been agreed these past two years. Officials such as EU Commission President Jean-Claude Juncker sent messages throughout the session saying so. Sterling was surely on its way up, but Parliament saying “You got this!” does not serve Pound appreciation.