inancial markets are pricing in essentially zero chance of another rate hike in the US this month following a recent bout of weaker-than-expected economic data and somewhat dovish tone of recent Fed communications. The key to the US Dollar will instead be the release of the Fed’s latest ‘dot plot’, which shows where each member of the committee expects rates to be at the end of each year.

Following the recent slowdown in inflation the median projection of future hikes is likely to be somewhat downgraded, which may pressure the greenback lower this evening. However, any rhetoric that expresses optimism over the inflation outlook and overlooks the downside risks to the growth outlook from both Hurricane Harvey and Irma could temper losses. We expect Chair Janet Yellen to keep the possibility of a December hike firmly on the table.

Ahead of tonight’s meeting, the Euro made a fresh, albeit short lived, charge towards the psychological 1.20 level against the greenback on Tuesday. The monthly economic confidence index from ZEW, one of the more closely watched data releases on the economic calendar, was broadly impressive. German sentiment rose much more than expected this month ahead of the country’s federal election, which appears to be providing very little uncertainty in the Eurozone. The index jumped to 87.9 from 86.7 off the back of recent solid growth figures for the second quarter and an increase in investment activities.

With no meaningful economic releases on the docket in the Eurozone today, the Euro will be driven almost exclusively by the Federal Reserve meeting at 19:00 UK time.

Boris Johnson quit claims buoy the Pound

Sterling ended trading yesterday pretty much where it began. The currency briefly jumped by around a half a cent against the US Dollar following reports that foreign minister Boris Johnson could resign if his Brexit demands were not met. The market appears to be of the view that a resignation of Johnson, one of the hardliners among the Conservative government, would allow Prime Minister Theresa May to follow through with a softer Brexit. This claim was later dismissed by the former London Mayor, and the UK currency consolidated much of its gains.

With the economic calendar essentially barren in the UK on Tuesday, the Pound was mostly stuck in a range. Retail sales this morning will take on added importance given recent rhetoric from the Bank of England that suggests an interest rate hike may be on the horizon. Any number north of the 0.2% expansion predicted would reinforce expectations for a November rate increase and could provide decent support for the Pound today.