GBP/USD, EUR/USD flows: Sidelined into big Fed meeting; no surprises from UK CPI
FX holds flat into the big FOMC meeting, focused on the dots and the tone
UK CPI as expected, likely leaves BoE in divided pause this week
All very flat for FX in the run in to the FOMC today, US10s poised at and around the 5% reference having looked above the figure the last few sessions. Lots to digest out of that meeting, even with the market almost fully priced for the hike - particular focus on the quarterly projections and the tone adopted in the commentary and presser given that after the recent ramp up, the market now has a lot priced in.
It will be interesting to see how the market reacts if this proves a 'dovish hike' - or at least a less-hawkish-than-market hike. That is, whether there's a dollar kneejerk lower or the market opts to 'fight the Fed' on the messaging. The looming BoJ with a similar dynamic in play there is also very much in the mix on USD/JPY
Main news in the meantime comes from UK CPI data, headline up to 3.1% very much as expected, with the core rate holding 2.6%. That along with the labor market data yesterday tends to reinforce the MPC’s divided waiting stance at this week’s meeting. PPI data showing output prices up to 3.7% (though core again steady at 2.7%) and input prices up to 6.1%, does still underscore that pipeline pressures remain and keep this a far from comfortable period, even as the majority stay focused on lack of second round effects and in particular the softening in the labour market. Sterling tending to stay pretty unresponsive to data this week with most data sticking with the thrust of the recent trends.