Pound up on hopes of Internal Markets bill breakthrough

The FOMC decision looms over the day, keeping markets in an indecisive frame of mind. Meanwhile, the pound has rallied on hopes of a deal between the UK government and rebel MPs.

  • Equities struggle ahead of the Fed
  • Signs of movement on Internal Markets Bill
  • FOMC to focus policy on growth outlook

From a glance at price action today it is easy to tell that the Fed issues its latest decision tonight. While US markets have opened up with modest gains, European stocks have shed some ground, with the FTSE 100 dropping back below 6100. Rolls-Royce and IAG have been the chief culprits of this weakness on the equity side of things, as aviation names take a hit thanks to Airbus’ gloomy outlook for the sector. Meanwhile, further attempts to rally have been stifled by strength in the pound, which has rallied on reports that the government is close to an accommodation with potential rebel MPs over the Internal Markets Bill. If the rebels can be appeased then the chances of getting back to negotiations with the EU increase, Barnier et al being keen to avoid being the ones to walk out.

The course of the rest of the day depends heavily on the Fed, with the meeting not expected to produce much in the way of policy changes. Traders should expect the growth forecast to take the main burden of Fed policy, with inflation very much a secondary concern given the shift to the new regime. Dollar bulls will be left hoping that the Fed says as little as possible, the greenback having found it hard to make any kind of headway in recent weeks. The central bank focus continues tomorrow with the Bank of England, but here there are likely to be even fewer changes in that bank’s outlook than there were in last week’s ECB decision.

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