Dollar Gains Before Fed Announcement

The pound remains eight month low against the dollar before the Bank of England releases the minutes of the September meeting today at 9:30. Market participants expect an unchanged 9-0 vote to hold Bank rate at 0.5% as the slowing economic recovery outweighed the prospect of rising prices. The main focus will be to see if the MPC have maintained its 8-1 stance for keeping the Bank’s QE program at 200 billion pounds, or if there were some committee members who joined Adam Posen in voting for an increase of quantitative easing. Also scheduled for today is the public finance data, with the expectations for the Public Sector Net Borrowing (PSNB) to have been 11.5 billion in August while public finances are expected to reach 7.0 billion for the same period. Sterling’s sentiment was dented during the overnight trade after Nationwide report showed that UK consumer confidence fell to 48 in August, from 49 in July. Expect for the pound to weaken against its peers should we see the BoE officials leaning towards additional fiscal stimulus.  

The dollar gained across the board during the overnight trade on speculation the Federal Reserve may announce today a further stimulus measures after its two-day meeting. Analysts are expecting the Fed to expand its monetary stimulus to lower the cost of long-term mortgages in order to support the rebound in US housing market. Therefore, it is broadly expected for the Fed to leave its benchmark rate unchanged at 0.25%. Also scheduled for today are US housing figures, with the expectations for the existing home sales in August to have increased by 1.7% after dropping –3.5% in the previous month. Separately, investors around the globe are running for the safety of the US currency as global economy is showing further signs of slowdown. The IMF said yesterday the world economy will expand 4% in next two years, compared with June forecast of 4.3% in 2011 and 4.5% in 2012. The IMF predicted that developed nations will grow 1.6% instead of 2.2% while the developing economies will experience 6.4% growth, down from 6.6%.

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