All Eyes on Fed, UK jobs and BoE Minutes

A busy day lies ahead in the markets with a particular focus on central banks as the Federal Reserve announces its latest monetary policy decision later while the minutes from the latest Bank of England will be released this morning. Meanwhile, the verbal back and forth between Greece and its creditors is likely to continue in the background with neither side showing a willingness to do whatever it takes to get a deal done.

The FOMC decision is undoubtedly the main event today. It will be accompanied by a statement, the central banks’ latest economic projections, the dot plot of policy makers rate expectations and a press conference with Chair Janet Yellen. This should make for a very interesting evening as between all of the above, I think we could see some extreme volatility in the markets.

Everyone is currently trying to guess when the Fed will hike interest rates for the first time in nine years. Since the removal of forward guidance it has become much more difficult to predict and the slowdown in the first quarter only made the task harder. Yellen was always convinced though that this was transitory, even if others panicked and suggested otherwise, and she now appears to be being proven right as the data in May has been much better.

The rebound in the data has brought many people back round to the idea that a rate hike will happen this year and September is once again widely expected to be the month that the Fed pulls the trigger. We should get more insight into whether that is the Fed’s preferred liftoff date today, hence the expectations of big market reaction to all of the releases and the press conference. Of course, a rate hike could technically come today but that strikes me as being very unlikely off the back of one strong month.

The minutes from the Bank of England will be released this morning alongside the U.K. jobs report. The votes on interest rates and asset purchases are likely to remain unchanged, although I do believe we will see Ian McCafferty and Martin Weale vote in favour very soon. If that happens today we could see some sterling support although given that they’ve done it repeatedly in the past, it wouldn’t come as a huge surprise to the markets. The main thing we’ll be looking for from the minutes is whether attitudes have changed on the economy and if the middle of next year remains the most likely time for the first rate hike.

Unemployment is expected to remain at 5.5% today, while around 12,300 fewer people are expected to have claimed employment-related benefits in May. Most importantly, wages are expected to have risen by 2.5% excluding bonuses and 2.1% including. A rise of 2.5% excluding bonuses would mark the greatest increase since March 2009 and could suggest we are finally starting to see the kind of wage growth that has been lacking from the recovery, made even better by the low levels of inflation we’re experiencing.

Greece default fears are likely to continue to weigh on sentiment and the view that it could eventually leave the euro appears to be growing. The lack of determination on both sides is certainly worrying and suggests either very strong negotiating skills and an even better poker face or a lack of concern for what could follow. Whatever it is, a Greek default and exit may not offer the kind of contagion risk it did before, but the uncertainty it would bring could certainly have a detrimental effect on investor, business and consumer sentiment.

Finally, final eurozone CPI readings for the first quarter will be released this morning. No change is expected but given the bond market volatility that has come recently as a result of the rise in inflation, it is certainly worth keeping an eye on. Any changes could prompt another round of low-liquidity driven volatility in the bond markets that could then filter through into other markets as well.

The FTSE is expected to open 17 points higher, the CAC 12 points higher and the DAX 39 points higher.

Economic Calendar

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.