European FX Outlook: After the Fed's hawkish hike, markets eye the ECB's potential QE-exit

Major market themes

  • The Federal Reserve raised rates as expected and added a hawkish tone by signaling two more moves this year and sending an upbeat message about the economy. The US Dollar initially advanced but then retreated. Analysis: Powell's Power Play: 6 hawkish developments, USD has room to resume gains
  • The European Central Bank is having a live discussion about exiting the QE program but it is unclear if they will make an announcement on it today or leave it until July. The euro recently gained on expectations for the end of bond-buying. Preview: ECB Preview: The time is right to set the end-date for asset purchasing
  • China did not follow the Fed with parallel rate rises and also published weak industrial output. Reports about imminent US tariffs on Chinese goods weigh on sentiment.
  • Australia reported a slightly worse than expected job gains, weighing on the Australian Dollar.

Top upcoming events

  • 8:30 GMT: UK Retail Sales are expected to rise. The release usually has a significant, yet a short-lived effect on the Pound.
  • 11:45 - ECB rate decision
  • 12:30 ECB Press Conference
  • 12:30 US Retail Sales. The Control Group is the most important figure. The effect may be limited due to the shadow of the Fed.

Additional notes

  • UK: The second day of votes saw additional victories for the government against pro-Remain rebels.
  • Italy: The government continues reaffirming its commitment to the euro-zone, calming investors.
  • North Korea: Japanese PM may visit Pyongyang in August, a part of the long peace process.
  • Oil prices stabilized as speculation about OPEC and non-OPEC decisions about expanding output.
  • The World Cup begins in Russia with the host playing against Saudi Arabia in the opening match, an OPEC-Non-OPEC duel. Market liquidity may be slightly affected.

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