It's a quiet start to the week in the market with very little data due to be released today. Investors are still analysing this month's FOMC rate decision and this afternoon’s inflation data may reinforce the view that there is still a chance that rates will rise before the end of the year. The PCE price index is expected to improve to around 1.3% which would be the highest level this year and a positive reading would give the Fed more reason to pull the trigger on an interest rate rise this year. Non-Farm payrolls due on Friday will probably be the focus this week with a reading of above 200,000 expected. Today there are several key Fed speakers due on the wires and with a lack of tier 1 data , attention will shift to any new rhetoric , particularly from President Dudley who has not made any comment since the recent meeting. He is due to talk at 12.30 and any hawkish commentary will see the dollar continue its rise.
The Euro lost ground last week as officials seemed to temper expectations for immediate new policy action from the ECB. Mario Draghi stated that that he would not hesitate to extend Quantitative Easing but overall his comments were not as dovish as many had expected. The ongoing revelations from Volkswagen will have done little to help Germany’s image and certainly kept the single currency under pressure. German employment figures due on Wednesday will be closely watched along with inflation data which is expected to drop into negative. The Euro should struggle to maintain any rallies in the current environment.
There is very little UK data for the market to digest this week with only mortgage and manufacturing numbers due. This could leave the Pound vulnerable to events elsewhere. With the dollar gaining ground and approaching 12 year highs versus a basket of currencies the Pound has been one of the largest losers. Positive US data and hawkish commentary from Fed officials could see the Pound fall further and test the psychologically important levels of 1.5000 versus the dollar and 1.3500 against the Euro.