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What will Yellen say?

Investors across the world tended towards riskier assets last week. This tendency could extend into the beginning of this week, which would be good for stock indices as well as the euro. It’s worth noting that the losses incurred on assets due to North Korea’s missile launch over Japan were quickly recovered, and the devastation caused by Hurricane Harvey was not as bad as expected. Volatility remains high on currency markets. Last week, the euro/dollar currency pair traded within a wide range from 1.187 to 1.2.

This week’s main event is the US Federal Reserve’s meeting. Inflation in the US hit 1.9% in August, which could push the Fed to speed up their tightening of monetary policy. In any case, judging by futures, expectations of a rate hike have been pushed forward from the middle of next year to its beginning. The probability of a rate hike at the Fed’s December meeting (12th – 13th) has risen from 25% to 45%. I’m curious to see whether Fed Governor Janet Yellen agrees with markets and whether she’ll give more details about plans to reduce the Fed’s balance sheet. In any case, close attention will be paid to the wording of the final communiqué.  This will set the tone for the dynamics on currency pairs until the end of September. The EURUSD pair could either head to new heights at around 1.21, or it could fall to around 1.18 – 1.185.

From the data releases planned this week, the most important ones as far as I can see are the US housing market report, and the PMI and consumer confidence index from the Eurozone. We should also keep an eye on the meeting of the Bank of Japan, which takes place on the 20th of September, as well as Bank of England Governor Mark Carney’s speech on Monday, the 18th of September. Since the beginning of September, the pound has grown by about 9% in anticipation of a rate hike in the near future, so Carney could use today’s speech to stage a verbal intervention.


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