Market is consolidating ahead of the FOMC

Today's Highlights

Market is consolidating ahead of the FOMC

UK GDP grew by 2.7% y/y but was less than estimates

Australian headline inflation eased to 1.7%

FX Market Overview

Negotiations have begun. The new Greek government has started positioning itself ahead of negotiations with Greece's creditors and they look like they have nothing to lose. There are many voices urging Greece to just plain old default on everything, leave the Euro and launch a new devalued Drachma but that is clearly the 'nuclear' option and will be held as the sword of Damocles during negotiations. Whatever the outcome, there is very little chance that Greece could repay all its debt and build growth into the economy in any sensible time frame so something has to give. The Euro is still weak but hasn't completely collapsed.

US data caused some surprises yesterday; not least the unexpected slump in durable goods orders which came in well below the market estimates to -.8% vs the .6% expected. Although the report was weak, after breaking the release down further it had been distorted by a big slump in plane bookings which is the most volatile component of the report. Nevertheless it weakened the dollar versus a basket of currencies and this has enabled the Sterling/Dollar rate to appreciate after lingering around important support levels over the past few weeks.

The Australian Dollar made some gains overnight after improved underlying inflation data. The headline number of 1.7% disguised the upturn in the leading indicators index from and that gave the markets the excuse they needed to take profit on recent AUD weakness. Whilst the Australian economy may be treading water, it isn't declining and that is a positive in these uncertain times. However, most analysts are forecasting a decline in commodity prices through 2015 so there may well be further pressures on the Australian Dollar in the months ahead.

The market is consolidating ahead of the FOMC tonight and although no major changes are expected , it will provide another chance for the Fed to assess the effect of the higher dollar and lower oil prices on the policy outlook. Recently the market has cooled on the idea of the Fed tightening after recent monetary easing from the European Central Bank and Bank of Canada, as well as some disappointing US data which has emerged. Tonight at 8.00 PM we also await the RBNZ meeting which is expected to show no change in monetary policy.