Ps last night voted on whether or not to support Johnson’s Internal Market Bill – legislation that would override part of the Brexit Withdrawal Agreement and breach international law. In the end, the bill passed relatively comfortably by 340 votes to 263, despite widespread criticism of the legislation from all corners of parliament. There is a long way to go, however, for the UK to break the current impasse it has in negotiations with the European Union. Sterling traders are not getting at all carried away, with the pound still hovering just above its lowest level in almost two months versus the US dollar.

The UK currency did get some modest support following this morning’s UK labour data. The latest claimant count number, which shows the number of Brits newly claiming unemployment benefits, came in at a less than expected 73.7K (100K consensus). There was also a welcome downward revision to the July number of around 25,000. Once again, investors are not getting too ahead of themselves, given the increase in unemployment that is expected to ensue once the government’s furlough scheme draws to a close at the end of October.

FOMC to unveil latest interest rate projections

Investors will now be looking ahead to major central bank policy announcements in the next couple of days, headlines out of which are likely to largely dominate the narrative in the markets. First up will be tomorrow evening’s FOMC announcement. With chair Powell announcing a significant overhaul to the bank’s policy strategy last month, we don’t expect any meaningful changes in policy or forward guidance this week. We will instead be paying close attention to the bank’s updated economic and interest rate projections.

Since the FOMC’s last meeting, the recovery in the global economy has taken place at a generally quicker pace than central bankers had anticipated during the height of the downturn. We expect the language in the statement to be marginally more upbeat versus July, accompanied by an upward revision to growth and a downward revision to unemployment forecasts. The bank will also be forecasting rates through 2023 for the first time this week. This 2023 dot is likely to prove key to the market reaction.

We think that the adoption of the Fed’s average inflation target will ensure that the medium dot remains at the 0-0.25% range for 2023. A median dot that suggests the return to interest rate hikes in 2023 would be a surprise to the market and would likely help support the US dollar in the second half of the week.

Then, on Thursday, the Bank of England will be announcing its latest policy decision. As we have mentioned in our BoE preview report, we think that the key to the market reaction here will be whether any members of the MPC vote in favour of an immediate increase in the bank’s QE programme. This, we believe, could pave the way for more stimulus in November and may weigh on sterling towards the end of the week.