As with Monday, Tuesday was conspicuously light in regards to top tier data. This continues the tone from the weekend, where the Pound negativity persisted with GBP/USD and GBP/EUR continuing to slip. The shift in sentiment has been largely based around a refocusing of the market on the hard realities of Brexit, with concerns mounting that Britain is heading for an inevitable nasty divorce from Europe. Further to this, over the weekend the issue of Scottish independence was again revisited by former Scottish First Minister, and Scottish independence heavy weight, Alex Salmond. This negativity has been reflected with an over 2.5 cent slide in Cable since Friday as rates move back down through the post-Brexit range.
Of the data published, the most significant data was the release of the minutes from the Reserve Bank of Australia Monetary Policy Meeting. The final minutes from outgoing RBA chief Glenn Stevens, unsurprisingly saw him present a platform of stability as he departed. The minutes said the RBA board "judged that the current stance of monetary policy was consistent with sustainable growth in the Australian economy and achieving the inflation target over time". Short of actually cancelling the October board meeting, the RBA could not be any clearer that there is very little chance it will end the year with another cash rate cut.
The other high tier data release will be US Building Permits released later in the afternoon. This failed to meet the markets expected improvement from 1.14 Mil to 1.17 Mil, staying static at 1.14.
The focus today is firmly on the US Federal Reserve FOMC who meet this evening. Although the possibility of a rate hike today is much diminished, with only a 15% chance of a hike according to CME Group, the market is eager to decipher the likelihood of any further US interest rate hikes over the rest of the year. With the Federal Reserve typically reticent to hike rates in the same month as an election, the number of meetings remaining in 2016 for them to hike are fast running out. However, they remain adamant that the door is firmly open for further increases this year, and markets should be mindful at the possibility of a rate hike. Michael Gapen, an economist at Barclays reaffirmed yesterday in a research note, a rate hike is “closer than you think.”
Even in the event of a no-hike decision, attention will be on Fed Chair Janet Yellen’s press conference and on whether the Fed will pare back its estimates for economic growth and the pace of interest rate hikes in 2017 and 2018.