Investors appear to expect a dovish statement today from US Federal Reserve Chairwoman Janet Yellen , i.e. a ‘Goldilocks’ not-too-fast, not-too-slow approach to monetary policy. So, we believe that the risk is mostly on the upside in USD: if Yellen surprises and comes out hawkish, investors will be scrambling to buy USD.
Yellen’s scheduled remarks, to the US House of Representatives at 10.00 Washington time, offer a big opportunity to explain the Fed’s plans on interest-rate hikes and on its upcoming balance sheet run-off. Details have so far been scarce. Many investors were disappointed by the limited information provided in the transcripts of June’s meeting of the Fed’s Open Market Committee.
Her remarks are also are the only significant event planned for today. Otherwise, the markets are in the doldrums of mid-summer. Volumes are low, equity indices and currencies are going nowhere. After edging slightly lower on Tuesday, European markets opened in positive in territory with the DAX and Footsie rising 0.39% and 0.67% respectively. The picture is not much brighter in the FX market with most currency pairs treading water for the past few days. The pound sterling rose 0.35% against the greenback yesterday before falling 0.85% to 1.2825 after a Band of England report showed Deputy Governor Broadbent is reluctant to support a rate hike for now.
By Arnaud Masset