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Forex - Weekly outlook: September 26 - 30

Published 25/09/2016, 09:44 pm
© Reuters.  Dollar ends the week lower in wake of Fed, BOJ moves
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Investing.com - The U.S. dollar recovered slightly against a basket of major currencies on Friday, but remained near a two-week low as traders continued to digest policy announcements from the Federal Reserve and the Bank of Japan.

The Fed left interest rates unchanged at the conclusion of its policy meeting on Wednesday, but hinted that a hike could come in December if the job market continued to improve.

At the same time, the U.S. central bank also cut the number of rate hikes it expects next year and in 2018, according to the median projection of forecasts released with its post-meeting statement.

The Fed has policy meetings scheduled in early November and mid-December. Economists believe policymakers would avoid a rate hike in November in part because the meeting falls just days before the U.S. presidential election.

Markets are currently pricing in a 13% chance of a rate hike at November's meeting, according to Investing.com's Fed Rate Monitor Tool. For December, odds stood at around 55%.

The U.S. dollar index, which measures the greenback's value against a basket of six major currencies, inched up 0.1% on Friday to end the week at 95.40, not far from the prior day's two-week low of 94.94.

The index lost 0.75% on the week as markets remain unconvinced that U.S. policymakers intend to tighten policy in the coming months.

Against the yen, the dollar fell to 100.06 on Thursday, a level not seen since August 26, before bouncing back to settle at 100.97 by close of trade on Friday.

For the week, the pair lost 1.27% as investors remained skeptical about whether the latest BOJ measures will be enough to generate inflation.

The Japanese central bank refrained from cutting interest rates further into negative territory or expanding its asset purchase program at its monetary policy meeting, instead switching to targeting interest rates as a way to reach its inflation target.

Against the euro, the dollar fell slightly to end at 1.1227 by late trade Friday after touching 1.1256 on Thursday, the most since September 15. On the week, the pair added 0.64%.

In the euro zone, data on Friday showed that business activity in September expanded at the slowest rate since the start of 2015. The preliminary PMI from Markit showed that business activity in the 19-country region fell to 52.6 in September versus 52.9 in August and below market expectations.

The pound, meanwhile, plunged to a session low of 1.2915, a level not seen since August 16, before settling at 1.2995, down 0.92% on the day, on nerves about the pace and course of talks on Britain's exit from the European Union.

U.K. Foreign Secretary Boris Johnson said he expects his country will start formal Brexit negotiations early next year. The comments suggest that Britain could be on a somewhat faster track to an EU divorce than what markets expect.

Sterling hit a three-decade low below 1.28 in the wake of Britain's shock Brexit vote in late-June.

Elsewhere, the Canadian dollar tumbled nearly 1% against its U.S. counterpart following the release of disappointing domestic inflation and retail sales data.

USD/CAD rose 0.96% to close at 1.3168. Statistics Canada reported that the annual rate of inflation slowed to 1.1% in August from 1.3% In July. A separate report showed that Canadian retail sales unexpectedly fell 0.1% in July.

In the week ahead, market players will be turning their attention to fresh comments from Federal Reserve Chair Janet Yellen amid ongoing uncertainty over the timing of the next U.S. rate hike.

Meanwhile, investors will be focusing on a pair of speeches from European Central Bank President Mario Draghi for fresh hints on whether the ECB will step up monetary stimulus in the coming months to boost inflation and prop up the economy.

In addition, remarks by Bank of Japan Governor Haruhiko Kuroda will be eyed in wake of last week's decision by the BOJ to modify its policy framework.

Another big event for markets could be the first U.S. presidential debate on Monday.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, September 26

New Zealand is to release data on the trade balance.

In the euro zone, the Ifo Institute is to report on German business climate.

European Central Bank President Mario Draghi is to testify before the Committee on Economic and Monetary Affairs of European Parliament, in Brussels.

Swiss National Bank Chairman Thomas Jordan is to speak at an event in Geneva.

Bank of Canada Governor Stephen Poloz is to speak in Washington.

The U.S. is to release data on new home sales.

Later in the day, the market will turn its attention to the first televised U.S. presidential debate between Democratic nominee Hillary Clinton and Republican hopeful Donald Trump.

Tuesday, September 27

The U.S. is to release private sector data on consumer confidence.

Federal Reserve Vice Chair Stanley Fischer is due to speak at an event in Washington, DC.

Wednesday, September 28

ECB President Draghi is to speak about current developments in the euro area at the German Bundestag, in Berlin.

The U.S. is to publish data on durable goods orders.

Fed Chair Janet Yellen is scheduled to testify before the House Financial Services Committee on regulation and supervision, while St. Louis Fed chief James Bullard is to speak in St. Louis.

Thursday, September 29

BoJ Governor Haruhiko Kuroda is to speak in Tokyo.

Germany is to publish preliminary inflation data and a report on unemployment change.

The U.K. is report on net lending.

The U.S. is to publish final figures on second quarter growth, the weekly report on initial jobless claims and data on pending home sales.

Fed Chair Janet Yellen is to speak, via satellite, at an event in Kansas.

Friday, September 30

Japan is to release data on inflation and household spending.

China is to publish its Caixin manufacturing index.

The U.K. is to report on the current account and publish revised data on second quarter growth.

The euro zone is to release preliminary data on consumer inflation, while Germany is to release data on retail sales.

Canada is to publish data on economic growth.

The U.S. is to round up the week with data on personal income and spending, a report on business activity in the Chicago region and revised data on consumer sentiment.

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