All eyes on Powell

Tuesday’s exchange rate ranges were even narrower than those of the previous two days. At the head of the field there was almost no daylight between the USD, EUR, CHF, JPY, SEK, and NOK. At the rear, only a quarter of a cent behind, were the GBP, CAD, AUD and NZD.

To all intents and purposes the world’s ten most actively-traded currencies went nowhere. One could debate endlessly quite why they went nowhere but, in the end, it would boil down to lack of inspiration. There was nothing new out there to chase. There is also ample reason for investors to keep dry whatever powder they still have. This evening the US Federal Open Market Committee will announce its monetary policy decision, complete with the quarterly “dot plot” of where members expect interest rates to go in the next couple of years, and Chairman Jerome Powell will hold a press conference.

It is likely that the FOMC will make no change to policy today. However, it could ditch the long-standing mantra that it is “too early to be thinking about thinking about” tapering (winding down) QE asset purchases. Several FOMC members have referred obliquely to the possibility in recent weeks and it could receive official recognition today.

Hurry up and wait

In their eagerness to wait for the FOMC this evening, investors were not distracted by yesterday’s mostly forgettable economic data. There was nothing among them to create or change expectations and none was far adrift from forecast.

The Swiss franc did respond positively to a “strong recovery” forecast from the economic secretariat but there was no carry-through. Italian inflation reached a two-and-a-half-year high at 1.2%. The Eurozone’s trade surplus in April was close to the centre of its range over the last 10 years.

Among a stack of North American data Canada announced another strong month for housing starts and the New York Fed said manufacturing activity had expanded more slowly in June. US retail sales declined by 1.3%, a little more than expected in May, while industrial production increased by 0.8%. US house builders were slightly less confident because of rising material prices and supply chain shortages.

Inflation, jobs and the Fed

Today opened with UK consumer and producer prices. Canadian consumer prices appear at lunchtime and the Federal Reserve Chairman‘s press conference begins at 1930h. The Australian employment data come out early tomorrow.

The headline rate of UK inflation for May was 2.1%; higher than expected and above the Bank of England’s 2% target. Out of habit, the pound ticked up on the news, though the Bank is unlikely to react with tighter monetary policy. Canadian inflation is expected to edge up to 3.5%, which would be a ten-year high. Bank of Canada Governor Tiff Macklem may have something to say on the matter when he addresses the Senate banking committee later.

Tonight brings NZ data for consumer confidence and first quarter gross domestic product. They are followed by Chinese house prices and Australian employment. Analysts expect to see 30k new jobs in Australia, with unemployment steady at 5.5%.