• Fed begins balance sheet adjustment, still sees 3 hikes this year
  • US dollar recovers after the FOMC meeting
  • GBP inches higher on strong retail sales report
  • NZD surges on poll, GDP data ahead

The FOMC meeting was the key event of the week and it has not disappointed. The Fed heralded a huge (even if slow at first) unwind of its balance sheet but even more importantly pointed at another hike later this year. The Fed is not worries about a lasting impact from the hurricanes and still sees inflation returning to 2% as growth forecasts have been actually adjusted upwards. That really provided a much needed ground for the US dollar that’s been under pressure so far this year but has been able to recover after that statement was released. The EURUSD tumbled from above 1.20 to sub-1.19 in a move that could change the landscape for the FX market for the reminder of the year. 

When it comes to the macro data we had retail sales release today in the UK which was easily higher than expected at +1% m/m in August for both headline and ex-auto sales whereas only 0.1% and 0.2% increases (respectively) were expected. If that was not enough we had upward revisions for July. To be sure, this follows a period of lackluster growth in sales so it’s not like this demand is booming (annual ex auto sales is at just +2.4%) but still it is a positive surprise and a hint that the economy could be ready for this interest rate hike that the Bank of England wants to apply. The GBP was among G10 winners today but the USD recovery had it end the day in the red – still the pound gained against the euro and the yen.

Oil prices surged by more than 2% today despite a build in US inventories reported by the DOE. Markets focused on information from the OPEC that the current production trim deal has 113% realization at this stage – a sign of determination from the cartel. WTI prices (OIL.WTI) stormed past $50 mark as a result while Brent prices (OIL) rallied above $50 per barrel. 

Asian session is looking very interesting with two major events ahead: GDP release in New Zealand and Bank of Japan decision. The BoJ is relevant for the USDJPY pair but markets are not anticipating any change this time around. Meanwhile NZD will be in a spotlight because the pair has been very lively recently as Saturday’s elections are approaching fast,. Let us recall that today’s survey pointed to a swing of support in favour of the ruling party at the expense of the labour and this is a result markets would like to get. The NZDUSD rallied as much as 1.2% at one point but ends the day only with a narrow gain after the FOMC. When it comes to GDP markets expect brisker growth of 0.8% q/q after 0.5% in the first quarter.