Brexit Is The Big Elephant In The Room Urging The Fed To Adopt Slower Rate Hike Path

Dear Traders,

The market reaction to the FOMC statement was more muted than expected. While the cable maintained a daily price level around the 1.42-mark, the euro surged to a high of 1.1298 after the Federal Reserve held interest rates steady. While the decision to leave rates steady in June was widely expected, Fed chair Yellen declined to provide any guidance on the timing of future rate increases during her press conference. However, the Fed has taken a more cautious stance with regard to next week’s referendum in the U.K., a decision that “could have consequences for economic and financial conditions in global financial markets (…) and in turn for the U.S. economic outlook”, Yellen said. At present, the Brexit vote is the greatest uncertainty in the market.

In the light of a slower approach to interest-rate increases, the U.S. dollar weakened but losses were limited as the dollar is profiting from its function as a safe haven amidst all uncertainties. Traders should bear in mind that as long as the market is biased by the upcoming Brexit vote we might not see any sustained movements in the currencies. Large investors are likely to wait until after the big event in order to take new positions.

Today, the focus shifts to the U.S. Consumer Price report scheduled for release at 12:30 UTC. In case of any unexpected surprises the dollar will respond accordingly. Apart from that most important piece of economic data, the Bank of England is scheduled to announce its monetary policy decision at 11:00 UTC but no changes are expected, making it a non-event for traders. Before the BoE interest rate decision, U.K. Retail Sales are due for release at 8:30 UTC which could have a minor impact on the pound.

From the Eurozone we have Consumer Prices scheduled for release at 9:00 UTC but if the report is in line with the expectations, it will not have a significant impact on the euro.

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