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Markets await Fed interest rate decision

Amid speculation that Boris Johnson's new Brexit plan hinges on Dublin's backing, the focus is on the FOMC's policy meeting later today.

Centtrip: Markets await Fed interest rate decision

Oil markets have begun to slowly recover from the supply shock caused by an attack on Saudi oil facilities last weekend. Crude prices dropped in Asian markets, extending a 6 per cent decline after Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman said the kingdom tapped into inventories to restore supply to where it was.

Subsequently, the Dollar traded near a seven-week high against the Yen, with an overnight high of 108.27, supported by a surge in US borrowing costs. Further tightness was seen in the federal funds rate, with the Federal Reserve going to repo market to relieve the pressure for the first time since May 2016.

The focus will turn to the Federal Open Market Committee (FOMC) policy meeting later today. Investors are pricing in a quarter cut by the Fed, which could boost the greenback. However, the biggest question is whether the cut is required at this stage and furthermore how much more easing it will signal for this year and next.

US President Donald Trump has been criticising Jerome Powell for quite some time now. A move against the administration is likely to put the fed chair under increasing pressure.

In Europe, the German ZEW Economic Sentiment index recovered from -44.1 in August to -22.5 in September. The more positive news came alongside the European Parliament’s approval of Christine Lagarde as the next head of the European Central Bank.

The Euro drifted higher, reaching an overnight high of 1.1076 against the Dollar.

In the UK, according to reports, Prime Minister Boris Johnson has told his Cabinet he believes a Brexit deal could be reached, after agreeing with German Chancellor Angela Merkel that talks need accelerating.

Subsequently, Sterling nearly hit a six-week high against the Dollar, having reached 1.2527, and 1.1314 against the Euro. However, despite these positive advances, sentiment, peppered with an element of caution ahead of the Bank of England’s policy meeting tomorrow, remains weak due to uncertainty over how the UK will leave the European Union.

Today is full of data, including UK Consumer Price Index (CPI), Retail Price Index (RPI) and Producer Price Index (PPI) data this morning, followed by EU CPI at 10:00 (GMT). The FOMC funds rate and accompanying statement are due at 19:00, with the Q&A at 19:30.

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