FX Markets Monthly Outlook – September 2018

The month of August was seen to be relatively quiet as far as economic data was concerned. With the summer month coinciding with low volumes, the markets were broadly stable.

The lack of economic data pushed the focus on the trade policies by the U.S. The sanctions imposed on Turkey sent the Turkish lira sharply lower. The effect was seen as the crisis pushed the euro briefly lower as well. The decline in the euro came on account of the ECB’s concerns about its commercial banks’ exposure to Turkish debt.

The common currency managed, however, to quickly stabilize.

Trade wars continued to play out during the month of August. The markets continued to flip-flop with the proposed tariffs on goods imported from China. The markets also cheered the proposed China – U.S. trade talks. No major headway was made, however.

The markets were relatively quiet elsewhere including Europe and Asia-Pacific regions.

Here are the top performers and losers in the currency markets for the month of August 2018.

The month ahead: September 2018

Liquidity and activity are expected to pick up in the coming months as the markets look to the end of the third quarter.

Given the higher tariffs that were imposed earlier on, investors will be closely looking through the data for any signs of a slowdown. Some of the major central banks have already flagged concerns to the economy on account of the trade policies.

Here’s a quick overview of some of the important line up of events for the month ahead.

Central banks take the limelight in September

The month ahead will see a lot of activity, especially from the central banks. The line-up of central bank meetings this month includes the Federal Reserve, the European Central bank, Bank of England, the Bank of Canada, the Swiss National bank and the RBNZ.

Among the different central bank meetings, the Fed and the ECB will take the spotlight. The Federal Reserve is widely expected to raise the Fed funds rates by 25 basis points this month. This marks the third interest rate hike this year and will bring the short-term interest rates to 2.0% – 2.25%. The rate hike comes in the backdrop of the U.S. President Trump expressing his concerns about the Fed pushing rates higher.

The higher rates are no doubt expected to raise the borrowing costs for the United States. With the U.S. economy seen to be entrenched in strong growth, the Fed’s decision to hike rates falls in line with the market expectations.

With the September rate hike, investors will already be looking at the fourth quarter meeting, due in December. According to the Fed officials, the next rate is forecast for the December meeting.

Elsewhere, September marks a mini-taper from the European Central bank. The ECB’s bond purchases are cut down by half to 15 billion euro in bond purchases for the remainder of the year.

The European central bank will be ending its bond purchases by December 2018. With both the events priced in, investors will be looking to officials for forwarding guidance for the fourth quarter.

Sweden elections

Sweden will be holding its general elections on 9th of September. Although the elections are unlikely to upset the status quo, investors will be watching the developments from Europe.

The elections are unlikely to spring a surprise with the Social Democrats expected to win. However, with recent issues such as the EU’s immigration policy coming up on tops, the elections do come with a hint of warning.

The elections are expected to see no party winning a majority which is expected to leave a certain amount of uncertainty. However, the risk premium is still distant with little to no risk seen from populist policies.

Still, having said that, the SEK is a currency followed by the EUR worth keeping an eye on.