FOMC meeting in focus as emerging markets ramp up interest rates.

As we look forward to Ben Bernanke’s last meeting as Chairman of
the Federal Reserve,
markets are leaning towards an expectancy of yet another round of
tapering to the monthly asset purchase program. The FOMC statement
and interest rate meeting today will give further direction on the
Fed policy which has been roughly outlined as a steady taper
program of $10bn per month for six months and they aim to get their
QE program withdrawn by December this year. However, it was a mixed
day for the greenback yesterday as durable goods orders came out
worse than expected and data has not been very encouraging
considering the weak employment number that was out earlier in the
month.

Anticipation of another round of tapering had caused chaos and
turmoil in emerging markets earlier this week which has led central
banks in India, Turkey and Brazil to increase interest rates. The
Reserve bank of India increased rates by 0.5 per cent to 8 per cent
while drastic measures were taken by Turkey to increase interest
rates in an emergency meeting to 12 per cent up from the current
7.75 per cent, even though current account deficits are fairly high
and inflation continues to be a thorn in the flesh for emerging
economies, as they try and stem the weakness in their currencies.
It has been a fairly turbulent week in terms of equity markets
losing ground across the board on Monday to central bank decisions
which have brought about some intermittent stability.

In the Eurozone, deflationary risks to the economy continues as
ECB president Mario Draghi suggested that he may consider
purchasing bank loans to stem risks. He also reinstated neither was
this remedy future bank policy nor forward guidance but merely an
alternative, should stagnation take over in the bloc. The euro
regained its initial losses and
EUR/USD currently stands at 1.3666. In terms of economic data.
Spanish retail sales and Italian business confidence are due out
later this morning.

Sterling continues to enjoy an extended bull run, as GDP figures
revealed that it has been the best year for the economy since 2007
expanding by 1.9 per cent in 2013, agricultural output up 0.5 per
cent in the quarter while manufacturing and production gains
traction moving up by 0.7 per cent. With buoyant employment figures
adding to GBP strength, hopes of an early interest rate hikes were
played down by BOE governor Mark Carney as he is expected to issue
a statement later today clarifying that although inflationary
concerns have kept Sterling in check, thresholds are not automatic
trigger points for rate rises; merely benchmarks to assess economic
policy. GBP/USD currently trades at 1.6584 and GBP/EUR at
1.2135.

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