The week ahead in FX: 16-20 September 2019


Staff member
With the ECB behind us, it's all about the Federal Reserve's FOMC meeting on Wednesday, 18 September 2019. The FOMC is expected to follow the ECB and lower the Fed funds rate corridor by 25 basis points to 1.75-2.00% from 2.00-2.25% previously. This would obivously be welcomed by Donald Trump. Fed chair Jerome Powell will do his best to put an independent Fed on show on Wednesday, but Trump is forcing his hand by keeping the trade war with China alive. The Fed is therefore expected to cut the rate preemptively as a so-called "insurance cut" against a potentially unfavourable outcome of Trump's trade deal negotiations.

Briefly getting back to the ECB: Some board members have openly criticised Mario Draghi after the press conference for pushing through new stimulus measures at a time when many do not see the necessity to do so. The restart of the asset purchase programme (APP), i.e. quantiative easing (QE), has been particularly opposed. Although Mr Draghi said during the press conference that - despite a "diversity of views" - there had been a "broad consensus" amongst the board members rendering a vote on APP unnecessary, we know now that this could not possibly have been the case. Jens Weidmann (President of the Bundesbank), Francois Villeroy de Galhau (Governour of the Bank of France) and Klaas Knot (President of the Dutch central bank) have been very open and vocal in the criticism of Mario Draghi's insistence on QE. ECB Executive Board Members Sabine Lautenschlaeger and Benoit Coeure have reportedly also opposed the APP. I know, this thread is about the coming week, but what has become known during the aftermath of last week's meeting has important implications for future monetary policy measures, thereby setting the framework within which Christine Lagarde will be working, so this is something to keep in mind.

The coming week's trading will also be overshadowed by the weekend drone (and possible missile) attack on a key oil processing plant of Saudi Arabia that effectively cut the kingdom's oil production in half. At first, it was suspected that the drones were coming from Yemen, but the U.S. have since produced satellite imagery that they say prove the attack was really coming from Iran. We do not know what is true yet, so the investigations and rumours will not just have an impact on the oil price but also on currencies and other asset classes, given the implications for the ongoing U.S.-Iran deal negotiations and the stability of the region overall.

Aside from the above, also keep an eye on these economic data releases:

Monday, Italy will report its YoY CPI figures for August. In the U.S. the Empire State manufacturing survey results will be published.

Tuesday, Germany's ZEW institute will publish its latest survey results for both the current economic situation and expectations for the future. Investors will scrutinise the data for any hints Germany might be slipping into recession. In the afternoon, monthly growth figures for industrial production in the U.S. will be reported. It is expected that production increased slightly by 0.2% MoM.

Wednesday, the U.K. will report key inflation figures. The eurozone follows with its own CPI figures. Inflation in the eurozone is expected to have been 0.9-1.0%, still well below the ECB's 2% target. Later that day, MBA mortgage applications and housing starts will be published in the U.S. before the Fed's FOMC will announce its latest monetary policy decision. A 25 basis point cut in the funds rate is expected.

Thursday, the Bank of England (BoE) will also make its rate decision. The BoE rate stands at 0.75%. No change is expected for this week's meeting. Less than two hours later, initial jobless claims and continuing claims will come out in the U.S. The expectation is for a slight weekly increase in jobless claims.

Friday, Japanese YoY CPI data will be released. Germany will report CPI figures for August and we will learn more about consumer confidence in the eurozone. Aside from that, Friday's agenda is relatively light on data.

Have a good start into the week and good luck!