Wall street traded in the red as the recent FED bullishness has thrown a spanner in the works in addition to the added political pressure surrounding the USA in recent trade. Traditionally an increase in rates or a hawkish outlook for monetary policy results in an increase in the strength of the currency and a weakening of the equity market. Given the FED reliance on data to forecast and make decisions, the USD and equities will remain sensitive to economic indicators, with the USD strengthening and equities weakening as good data rolls in, and vice versa if the data sours.

The BOE surprised markets yesterday by indicating that the members were split on whether they should increase rates or keep them on hold, this led to a strengthening of the GBP with the GBPUSD testing 1.2800. The BOJ struck a relatively dovish tone which saw the JPY weaken across the board but specifically against the USD, where the pair made gains of over 150 pips on the combined effect of a hawkish FED and dovish BOJ.

Looking ahead, we have several key events to cap the week. Out of the EU, we have the release of the Final CPI y/y along with the release of the ECOFIN Meeting results. A better than expected CPI release and/or a more hawkish meeting outcome will see the EUR lifted as some of yesterday’s losses are recapped.

Out of the USA, we have the release of important housing data in the form of Building Permits and Housing Starts data, followed by the Prelim UoM Consumer Sentiment figure, which is expected to show an increase in confidence by consumers. Better than expected releases will add fuel to the recent FED bullishness, driving the USD higher while gold and equities slump. Worse than expected releases will see the USD slump while gold and equities firm as investors price in the contrasting data.