Fed members supported a possible rate hike even as US data softens
The September Federal Open Market Committee (FOMC) rate hike got a couple of endorsements today from U.S. Federal Reserve voting members Daniel Tarullo and Eric Rosengren. Both FOMC voting members talked up the chances of a rate hike this year, which could come as soon as September. In true Fed fashion it was only a matter of time that a contradictory statement hit the wires. Dallas Fed president Robert Kaplan offered a more dovish take saying the central bank can afford to be “patient and deliberate in its actions”. The net effect of Fedspeak intervention boosted the probability of a rate hike in September from 18 up to 24 percent.
Central banks scheduled to announce rate statements between September 5 to 9 all predictably held rates unchanged. Wait-and-see is becoming a global strategy followed by the Reserve Bank of Australia (RBA), Bank of Canada (BoC) and European Central Bank (ECB) and up next will be the Bank of England (BoE) that will publish its monetary policy committee decision on Thursday, September 15 at 7:00 am EDT. Even though the BoE cut rates in August and is expected to follow though later in the year, the comments from Governor Carney point to another major central bank keeping rates untouched.
The USD will face two tough challenges this week as the retail sales and Consumer Price Index (CPI) are released in the wake of mixed U.S. economic data. Fed Chair Janet Yellen put the September rate hike back on the table in her speech at Jackson Hole only for softer data to erode market confidence in the central bank following through. The comments from voting FOMC members has mended market estimates, but unless the USD clears the retail sales and inflation hurdles it will be for naught.
The EUR/USD gained 0.488 in the last five days. The single currency is trading at 1.1213 after the USD was on the back foot after the release of the ISM non-manufacturing PMI. Business confidence amongst purchasing manager dropped surprisingly to 51.4 well below estimates of 55.4.
EUR traders looked to the European Central Bank (ECB) for guidance and found very little as the central bank held rates and its quantitative program unchanged. ECB President Mario Draghi did not offer any new details about the future path of European monetary policy, which in turn appreciated the currency as no further stimulus will be here in the short term at the same time that the Fed is less likely to increase rate divergence on their end by hiking U.S. rates.
The price of oil rose 3.586 percent in the last five days. Oil has been volatile this week after OPEC members and Russia have commented on a possible oil output freeze. Iran is supportive of a move that would stabilize prices, but will continue to aim for its pre-sanction levels by upping production. News has driven the price of West Texas to $45.73 after a weekly low of 43.54. Inventory data showed a larger drawdown than expected due to tropical storms in the Gulf of Mexico.
Oil producers have broken their production records consistently, even after the failed March output freeze summit in Doha. Global demand has been weak, and the oil glut has send crude prices lower if not for the verbal intervention of OPEC and non-OPEC members. Production disruptions and talk of an output freeze has kept the price of crude in a more stable environment than last year. Disruptions have been cleared as geopolitical or weather related issues are sorted and all eyes will be on the OPEC meeting in Algiers to look for the much-talked about agreement. Even if the meeting is successful the freeze will be done at record high levels still leaving the problem with high supply and shrinking demand to pressure prices downward.
Market events to watch this week:
Monday, September 12
10:00pm CNY Industrial Production y/y
Tuesday, September 13
4:30am GBP CPI y/y
5:00am EUR ECB President Draghi Speaks
5:00am EUR German ZEW Economic Sentiment
Wednesday, September 14
4:30am GBP Average Earnings Index 3m/y
4:30am GBP Claimant Count Change
10:30am USD Crude Oil Inventories
6:45pm NZD GDP q/q
9:30pm AUD Employment Change
Thursday, September 15
3:30am CHF Libor Rate
CHF SNB Monetary Policy Assessment
4:30am GBP Retail Sales m/m
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
8:30am USD Core Retail Sales m/m
8:30am USD PPI m/m
8:30am USD Philly Fed Manufacturing Index
8:30am USD Retail Sales m/m
8:30am USD Unemployment Claims
Friday, September 16
8:30am CAD Manufacturing Sales m/m
8:30am USD CPI m/m
8:30am USD Core CPI m/m
10:00am USD Prelim UoM Consumer Sentiment
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar 
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