GBP Stays Strong Ahead of BoE Meeting

A 2 day FOMC meeting kicked off yesterday with the release of a rate expected later today by 19:00. Investors anticipate no rate change till December. A hawkish statement by the FOMC will likely not have significant impact on the dollar, as the expectation of a rate hike has been fully priced in by investors. Inflation however has been soft for most part of the year. The core PCE price index (a measure of inflation focused on by the Federal Reserve), started the year at 1.9% but dropped to 1.3% in September. This may make some Fed committee members uncomfortable about raising rates until inflation tilts closer to the Fed's 2% target. The Fed Chair Janet Yellen noted recently that the weakness in inflation is temporary, this is expected to be reiterated in today's announcement. Any change from the Fed on inflation outlook in the statement to a more cautious one would be perceived as dovish which would send the dollar southwards. This coupled with the effect the ongoing Russian investigation could have on the presidency would lead to volatility in the dollar. Investors also await the announcement of a new Fed Chair before the end of the week, nominees have been narrowed down to Jerome Powell & John Taylor. News coming from the white house says Jerome Powell is favored to take the position, this may not seat well with investors as John Taylor is preferred for his hawkish stance.

Data from the US showed higher than expected Chicago PMI & CB Consumer Confidence. Continuous positive data from the US have pushed the dollar up against other major currencies. The dollar traded at 1.290 against the loonie during the New York trading session. ADP non-farm employment change, ISM manufacturing PMI & crude inventories are economic data coming out of the US today.

The Bank of England takes center stage on Thursday as investors expect the first rate hike in 10 years. This is already being priced in, as the pound rose to 1.3289 against the dollar despite a -10 GfK Consumer Confidence index. Monetary Committee members however remain divided on a rate hike, while some policymakers point to a higher than target inflation as a reason for a rate hike, the other points to low consumer spending as signalled by soft retail sales as basis to retain interest rate at current level. Manufacturing PMI will be released today, analyst have forecasted 55.8 a 0.1 drop from the prior month's 55.9.

The Euro-area released inflation and GDP data, and the results were mixed. CPI Flash Estimate edged down to 1.4%, shy of the forecast of 1.5%. Core CPI Flash Estimate dipped to 0.9%, short of the estimate of 1.1%. There was better news from Preliminary Flash GDP, which beat analyst expectations by 0.1 percentage points at 0.6%. Unemployment continues to head lower, dropping to 8.9%, lowest level since March 2009. The ECB last week announced it will begin tapering its asset purchase program, as the Euro-area economy has rebounded in 2017. Inflation however remains below the ECB's target of 2%. The asset purchase program has been extended to April 2018, but the ECB could implement an extension if economic data tails off or if inflation fails to move upwards. No economic data is expected from the Eurozone today, while France & Italy are on bank holidays

The Spanish government seems to have Catalonia under its control after effecting article 155 of its Constitution earlier on in the week. The central government is pressing charges of rebellion on the ousted Catalan president CarlesPuigdemont, a charge which carries a 30year jail term. CarlesPuigdemont has however been reported to be hiding in Brussels. It remains unclear what Puidgemont will do next - he could request political asylum or even declare a government-in-exile. Elections have been slated for December 21, and two parties from Puidgemont's coalition have declared they will participate in the election. Investors are keeping a close eye on happenings in Spain.

Canada continued with the release of unimpressive economic data. The country's GDP for the month of October slid to -0.1%, USD/CAD jumped to 1.2907 after the data was released The contraction was partially attributed to maintenance shutdowns in the chemical and extractive industries and is consistent with last week's decision by the Bank of Canada to cut its projections for Q3 annualized growth to 1.8% from 2.0%. The BoC will be comfortable with a slowdown as it would help curb increased borrowing cost. Investors will be looking out for the Canadian manufacturing index and Governor Poloz statement later in the day.

A strong dollar continues to put gold under as the yellow metal is still trading below the 1,300 psychological level. Gold is negatively correlated with the dollar. Oil prices remain high gaining 0.33% to close at $61.14. Oil prices have been burgeoning since Saudi Arabia & Russia showed support for continuation of production cut.