With no major economic releases today, and very few planned for the week, all eyes are on the July FOMC meeting minutes on Wednesday and the Jackson Hole Economic Policy Symposium on Friday. Both are expected to shed some light on the Fed’s thinking regarding the proposed ‘tapering’ of QE3, which is by far the biggest potential market mover on the horizon.
The first of these events, the July FOMC meeting minutes, could push the dollar downward if the policy statement released immediately after the meeting is anything to go by. This statement showed that the policymakers were becoming weary of the soft inflation backdrop, and that the only dissenter from the previous meeting on this issue had since fallen into line.
The FOMC minutes are expected to lay down a cautiously optimistic picture of the growth prospects for the US, in keeping with most of the recent economic data. This means that Friday’s Jackson Hole Economic Policy Symposium will probably give the strongest hints to date about the Fed’s QE3 tapering intentions. Despite the fact that Fed Chairman Ben Bernanke won’t be in attendance, the meeting should give a strong indication of whether the US economy is now felt to be strong enough to withstand an interest rate hike at this stage in the recovery.
At present, it looks highly unlikely that the Fed is going to taper QE3 even if the economic data doesn’t support it, and will be understandably wary of bursting the asset bubbles that have built up in US Treasuries and global equity markets at such a sensitive time.
Without much happening until Wednesday, most of the major market moves will be based on speculation ahead of Wednesday’s announcement. This morning, the EUR/USD jumped sharply around 10am, from 1.33366 to 1.33689, with the market bracing for QE3 taper speculation