It is a really busy week for central bankers globally but the most attention will be given to Wednesday evening's FOMC announcement. There are many moving parts to this meeting, including the size of the hike, the Fed statement, new forecasts, and the press conference. There seems no reason for the Fed to soften the hawkishness shown at the recent Jackson Hole symposium and a 75bp 'hawkish hike' should keep the dollar near its highs of the year. For today, expect a quiet, pre-FOMC session, Softer housing starts or August building permits data look unlikely to impact market pricing of the Fed tightening cycle - currently pencilling in a peak near 4.50% next spring.
Today, Canada releases its August CPI data. The data is predicted to follow what was observed in the US. The fact that the core rates are remaining sticky while the headline pace is gradually slowing down speaks to the scope of the price pressures. Following a peak of 8.1% in June, headline CPI is predicted to have slowed for the second consecutive month. The Bloomberg survey's median forecast's prediction of 7.3% would be the lowest since April. The Bank of Canada is anticipated to raise rates by 50 basis points next month and by 25 basis points at its final meeting of the year after increasing them by 100 basis points in July and 75 basis points earlier this month. That would put the target rate at 4%. The USD/CAD is trading in at 1.3275 at time of writing down from the year high of 1.3345 yesterday.
EUR/USD continues to consolidate near parity. For today's session, the only eurozone data of note will be the July current account data. The balance may well dip back into a monthly deficit on the weak German data and will prove a reminder that the energy crisis has wiped out the eurozone's traditionally large current account surplus. Look for the euro to remain weak against the USD in the coming weeks.
UK institutions today reopen for business after respecting a period of mourning for the late Queen Elizabeth. It is going to be a busy week for both monetary and fiscal policy. On the former, we look for another 50bp hike from the Bank of England on Thursday. And Friday should see a mini-budget from the new UK chancellor. He has already positioned himself as going for growth and the mini-budget should provide details on the £100bn+ energy support package plus another £30bn+ of tax cuts. A difficult external environment and concerns as to how a government spending spree will be financed leave sterling vulnerable. Cable can easily sink back to 1.1350 and is likely to remain weak in the short term
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