Global market watch - 23rd September 2021

The pound was soft against both the US dollar and euro yesterday before the FOMC meeting. It gained slightly after the ‘no change‘ decision and then slipped lower against the US dollar as trading continued. We now wait for the Bank of England interest rate decision. We suggest that with the country facing the end of furlough, labour shortages, the Northern Ireland protocol running in the background, inflation at 3.2% and considered transitory. The Bank, which won’t want to be seen as changing its mind often will hold rates steady at 0.1%.
The single currency traded in a tight range before the Fed announcement whilst gaining slightly afterwards. Today we have the release of first reading PMI data and the ECB economic bulletin so we may get direction from here.
The market waited all day for the FOMC decision and when it came we had some short term volatility. The Fed decided;

The target interest rate was held steady at 0.25%. The dot plot showed that the committee members were evenly split on raising interest rate hikes for 2022. On tapering they initially said that ‘it was near.’ The US dollar  initially slipped lower on these announcements.

In the later press conference with Fed Chair Powell he announced that the tapering process will probably completed by the middle of 2022. This was seen as a quick taper and this immediately encouraged US dollar buyers. He later said that in his thinking, the test (for substantial progress in inflation and unemployment levels allowing tapering to start) ‘is all but met.’

In this case, we conclude that if the US economy posts a gain of circa 750k new jobs on October 8th (the average Non-Farm payroll gains over the past 3 months) we would expect tapering to be announced, started and completed by mid 2022. The US dollar was being bought on this news.
The AUD was buoyed to a certain extent by the news that Evergrande the struggling Chinese property developer was working with the Chinese authorities to restructure its debt.

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