European and US equity markets printed small gains yesterday and markets in general were relatively quiet in anticipation of tonight’s Fed meeting at 18.00. US Treasury yields rose somewhat whilst oil prices rallied after US-Saudi talks raised the risk of curbs on Iranian oil supplies.
CAD and MXN outperformed overnight on reports that the US has dropped the contentious auto-content proposal in NAFTA talks. The proposal stipulated that all vehicles made in Canada and Mexico for export to the US would have to contain at least 50% of US content.
UK inflation for February came in lower than expected at 2.7% y/y (vs 2.8% y/y) putting pressure on GBP. Barclays Research commented that the print “…will likely not be soft enough to change the BoE’s intended policy path…[as] the bank can look through data that does not support its view for a couple of months until it resets forecasts…”.
GBPUSD support comes in at 1.3980 ahead of 1.3880 with resistance at 1.4100 and 1.4150. In EURGBP, support is around 0.8685-0.8730 with resistance at 0.8800 and 0.8900.
The main focus today will be on the Fed meeting tonight at 18.00 and as a 25bp rate hike is all but fully priced in by the market, investors will be more interested in the path for interest rates, economic projections and the tone of the statement and press conference.
Barclays Research expects that it is “…too early for the Fed to move its interest rate projections to a four-hike median for 2018, but the average funds rate in Fed projections is likely to rise and show a steeper path…”.