Sterling remains buoyant on inflation data

Key Movers

All eyes in the market are firmly fixed on the Federal Reserve's Monetary Policy Committee's announcement tonight at 7pm UK time. This could be a very significant event for the US dollar and the broader market, and the repercussions of the announcement could be felt for a few weeks. On the one hand, there are calls for Jerome Powell and the Federal Reserve to start tightening monetary policy, through the tapering of its asset purchasing programme. With inflation in the US at highs we haven't seen since August 2008, there is plenty of rationale for this. However, thus far, the US central bank has maintained its stance that this rise in prices is temporary, and once we see a normalising of supply chain issues, as well as the easing of pent up demand from the pandemic, that prices will return to normal. With weak data from the US, including yesterday's retail sales posting which came out at -0.7%, this also suggests that the Federal Reserve could leave things unchanged.However, from the strength in the US dollar this morning, it seems that much of the market is anticipating a move from the bank tonight. We could see the bank disappoint, in which case the US dollar may weaken. All in all, there could be some volatility into the rest of the week and maybe beyond, as the market digests whatever decision is made.