All eyes on the Fed, with dovish hike looking likely

Joshua Mahony MSTA Scope Markets

European markets are on the rise ahead of today’s Federal Reserve meeting. Despite a likely US rate hike, a weaker dollar looks a distinct possibility.

European stocks rise ahead of Fed meeting
Dollar could deteriorate despite likely rate rise
UK inflation eases back amid falling energy prices

European stock markets have a much more optimistic tone in early trade, with the FTSE 100 rebounding sharply despite a strengthening GBPUSD and continued fears over Chinese growth. Overwhelmingly, markets are looking towards today’s FOMC meeting. The market is pricing in a 67% chance of a rate hike today, and Donald Trump’s attempted interference is likely to have pushed the committee towards a fourth 2018 rate rise rather than away from it. However, as much as the rate rise itself will be important, all eyes will be on the dot plot of future expected rate moves, with a shift towards a less hawkish 2019 outlook providing the basis for a potential dollar decline.

Today’s decline in UK inflation will have helped ease concerns at the BoE, with the slide in oil prices helping reduce some of the price pressures that have seen 22 consecutive months of above-target inflation. Crucially, with inflation declining throughout much of 2018, there is a good chance of hitting the 2% target in the coming months. With headline CPI some 100 basis points lower than the 3.3% rate of wage growth, Mark Carney & co will be hoping that this rise in real wages will drive higher consumer spending.

Ahead of the open we expect the Dow Jones to open 94 points higher, at 23,770.

Author

Joshua Mahony MSTA

Scope Markets

Joshua Mahony is Chief Markets Analyst at Scope Markets. Joshua has a particular focus on macro-economics and technical analysis, built up over his 11 years of experience as a market analyst across three brokers.

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