A surge of action following the UK retail sales reading disappeared as fast as it came, with investors quickly turning their attention back to this evening’s Fed meeting.
Cable jumped as much as 0.6% – crossing $1.36 in the process – after it was revealed that UK retail sales rose a far better than expected 1.0% in August, that figure ostensibly increasing the likelihood of a Bank of England rate hike. However, now sterling is up just 0.1% on the dollar (and flat against the euro), with a couple of things taking the shine of that retail surge.
First is the fear that the increase in spending is being fuelled by a rise in consumer credit, an issue the Bank of England has repeatedly warned on in recent months. Then there was the latest round of economic projections from the OECD, which puts the UK at the bottom of the G7 GDP table with expectations of just 1% growth in 2018 (that compares to a forecast 1.9% jump in the eurozone, and a 2.1% rise by Germany).
Of course, a large part of the swift return to forex flatness is the impending Federal Reserve meeting. While a decent chunk of the central bank’s September statement is locked on – the Fed is widely expected to confirm its intention to start reducing its $4.5 trillion balance sheet – its stance on interest rates is a bit more unclear. The CME Group FedWatch tool currently has the probability of a rate hike in December at 63.3%, so investors will be looking for further hints as to how likely FOMC is to pull the trigger before the end of the year.
All this has the Dow Jones facing a rather flat open after the bell rings on Wall Street. Not to worry – the Dow can inhale and hit a new high, with the index currently having 22400 as the next landmark in its sights.
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