No meaningful rebound

Although Tuesday was a less stressful day for sterling (GBP), it did not bring any meaningful rebound. The pound was all but unchanged against the euro (EUR), the Canadian dollar (CAD), the NZ dollar (NZD), the Swedish krona (SEK) and on average.

Investors seemed unconcerned that President Biden (USD) had told the UK Prime Minister (GBP) not to hold his breath in anticipation of a US/UK free-trade agreement, perhaps because they expected no different outcome. “The UK is now understood to be considering alternative options, including seeking to join the US-Canada-Mexico trade deal instead of striking a bilateral agreement”.

Nor were investors moved by news that the House of Representatives had voted to approve a suspension of the debt ceiling (USD) until the end of next year. Republicans will oppose the move when the bill goes to the Senate. (Uniquely, the US legislature addresses government expenditure separately from the means to fund it: the same lawmakers can one day vote to spend billions on, say, social security and, the next, vote to prevent the borrowing or taxation necessary to pay for it.)

Much as expected

If investors were unsurprised by the US administration’s continued reluctance to offer the UK a trade deal, and the obstinacy of Congress in pretending that the debt ceiling could remain unchanged, they were no more astonished by Tuesday’s ecostats or central bank decisions. All went much as expected.

Sweden’s Riksbank said it would stick to its 0% benchmark interest rate and continue its quantitative easing asset purchases until inflation reaches a sustainable 2%. China’s PBoC said it would keep its main policy rate unchanged at 3.85%, at the same time flooding the market with liquidity to soothe the nerves of investors worried about the possible default of a big property company. The Bank of Japan kept its benchmark rate steady, noting “high uncertainties over the consequences of Covid-19”.

US housing starts and building permits bounced back in August by 3.9% and 6% respectively, both beating forecast. New house prices in Canada rose 0.7% in August and were 12.2% higher on the year.

Fed decision to come

The biggest event on today’s list is the Federal Open Market Committee’s monetary policy decision and the Fed chairman’s subsequent press conference. It all kicks off at 19:00 this evening.

It is unthinkable that there will be any change to the federal funds rate target, which has been 0-0.25% since March last year. It is unlikely that there will be any change to the process of quantitative easing asset purchases. It is, however, possible that the FOMC and Chairman Jay Powell might have something to say about the future path of monetary policy; specifically, when the tapering of QE could begin.

Ahead of that Fed announcement, the ecostats will cover South African inflation, US existing home sales and Eurozone consumer confidence. Tonight brings the first of the preliminary purchasing managers’ index readings from Australia.