Federal Reserve widely expected to hold interest rates steady this week

Andrew Cummings
September 19, 2017

US Federal Reserve policymakers are in full focus this week as investors keenly await their take on recent data showing signs of an uptick in inflation and the impact on their plans for the pace of interest rate increases. The S&P gained 0.2 percent to a record 2,500.23.

At 10:18 a.m. ET (1418 GMT), the Toronto Stock Exchange's S&P/TSX composite index was up 49.97 points, or 0.33 percent, at 15,223.00.

USA ambassador to the UN Nikki Haley said on Sunday that the UN Security Council had run out of options on containing North Korea's nuclear programme and the USA may have to turn the matter over to the Pentagon. As the mortgage crisis hit its peak, the Fed began buying mortgage-backed securities in an attempt to spur growth and reduce unemployment.

"Speculation around the impending FOMC meeting is. driving the USA dollar, with markets eyeing both the unwind of the balance sheet and any tweaks to the dot plot", Felicity Emmett, senior economist at ANZ, said in a note.

But an address by U.S. President Donald Trump to world leaders at the United Nations on Tuesday and elections in Germany and New Zealand will add extra political uncertainty to the mix this week.

Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in NY, said "the primary reason U.S. yields are creeping up is that thinking about it clearly, the market has decided that the Fed is unlikely to change the December 2017 dot ― still saying they expect one more rate hike in 2017".

The Fed's two-day monetary meeting will start on Tuesday.

US central bank leaders are expected to hold the key interest rate steady this week, but they may begin trimming a huge bond-buying program that was meant to boost economic growth.

Benchmark 10-year Treasury notes were last down 7/32 in price to yield 2.226 percent.

"Gold could fall below $1,300 in the short term, but the question remains how people perceive the United States economy and the need for higher interest rates", said Ole Hansen, head of commodity strategy at Saxo Bank.

CENTRAL BANK WATCH: Central banks are due to hold policy meetings in Japan, Taiwan, Philippines and Indonesia.

The dollar index, which tracks the greenback against a basket of six major rivals, inched 0.1 percent lower to 91.928.

CURRENCY: The dollar gained to 111.19 yen from Friday's 110.82 yen.

Yellen's term as chairwoman ends in February, Vice Chairman Stanley Fischer plans to step down next month and there are already three vacancies on the Fed's seven-member board of governors.

Shortly after the opening bell, the Dow Jones Industrial Average added 42.54 points, or 0.19 percent, to 22,310.88. "There could also be some more political action in Japan before long, as the media is suggesting that (Prime Minister Shinzo) Abe may call a snap election next month amid his rising approval rating and fragile opposition".

Shares of Amazon.com were down 1.4 percent. Tighter monetary policy would "actually be restrictive and tightening in the face of low inflation and modest growth".

In commodity markets, metals shifted lower and oil prices steadied near last week's multi-month highs. Brent crude, used to price worldwide oils, dropped 37 cents to $55.25 in London.

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