Brexit Continues to Dominate but US Data Eyed

European equity markets are trading in the green for a second day on Wednesday, continuing to pare losses following Friday’s dramatic sell-off. The U.S. is expected to also open higher although these again remain some way off Thursday’ levels. While the initial panic from Brexit appeared to have eased, a huge amount of uncertainty remains which could continue to weigh on sentiment for a while.

The FTSE is now closing in on Thursday’s closing level which is quite extraordinary given Friday’s initial sell-off.

FTSE Daily

Source – UK100 on OANDA fxTrade Platform

The weakness in the pound will be helping considerably given how much of the FTSE’s profits are generated outside of the U.K.. Unlike the FTSE, the pound has barely recovered and continues to trade near its lows. We could see further downside pressure on the pound in the coming weeks, with the cloud of uncertainty surrounding the U.K. unlikely to ease up.

While the U.K. will continue to be a key focus for investors on Wednesday, some attention will shift back to the U.S. where a number of important pieces of data will be released. The chances of a rate hike from the Federal Reserve appear to have slipped considerably since the U.K. referendum, with the uncertainty surrounding the result already being felt in financial markets and possibly flowing through to the global economy. Markets are now pricing in only a 17% chance of a rate hike this year and a higher chance of a cut by November than a hike.

Fed Funds Futures

Source – CME Group FedWatch Tool

That said, investors will still be looking to the data for signs that the economy is recovering despite the headwinds that lie ahead. The core PCE price index stands out as the most important release, with it being the Fed’s preferred measure of inflation, and any sign that this is picking up ahead of what could be a challenging period, would be welcomed. The same applies to income and spending figures, although I don’t imagine for the moment at least that they will have any significant impact on people’s views when it comes to interest rates.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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.
Craig Erlam

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