The Federal Open Market Committee meets tonight. At the end of the meeting, the Federal Reserve should raise the range of its key rate by a quarter point to 2%–2.25%. This widely anticipated decision will be the Fed’s third hike so far in 2018, and the eighth since it abandoned its quantitative easing (QE) programme in 2016. However, the attention will not be focussed as much on this point as on the Fed’s new economic forecasts through 2021, which it will also publish tonight. With GDP growth reaching an annualised 4.2% in the second quarter, and a rise in wages almost reaching an annualised 3%, the market remains optimistic and does not see anything causing the Fed to change course in the immediate future. The robustness of the US economy is also reflected in the stock market indices: so far, the Dow Jones, the S&P and the NASDAQ have increased by 7%, 9% and 15%, respectively, since the beginning of the year. In comparison, all main European and Asian indices, except for the CAC and the Nikkei, are in the red.

On Monday, the single currency strengthened against the dollar as ECB President Mario Draghi spoke of “vigorous pick-up” of inflation and wage growth, driving up both the value of the euro and European debt yields. “Underlying inflation is expected to increase further over the coming months as the tightening labour market is pushing up wage growth”, he said. Wage growth in the eurozone accelerated to 2.2% in the second quarter, compared to 1.5% in 2017. The euro briefly passed the $1.18 bar in the wake of Mr Draghi’s statements before retreating back after profit-taking.

The Swiss franc remains highly in demand, not only in the light of London and Brussels’ differences on Brexit, but also influenced by discussions around the budget in Italy and tensions concerning emerging countries such as Turkey and Argentina. On the occasion of its monetary policy meeting, the SNB stuck to its official line, reaffirming the fragility of the foreign exchange market and its willingness to intervene if necessary. It still believes that the franc is overvalued. The euro reached CHF 1.1222 last Friday before bouncing back above CHF 1.1350 after Mario Draghi’s remarks on Monday. It should be noted that Fitch Ratings confirmed Switzerland’s “AAA” rating – the highest possible – as well as its “stable” outlook.

Oil prices rose yesterday in New York to their highest levels in four years for both Brent Crude, currently trading at $81.90, and WTI, which traded at $72.15 after Donald Trump railed against OPEC for the “horrible prices” he says it imposes, demanding that the organisation lower the price of oil while reiterating his threats to Iran at the UN General Assembly.

The agenda for the coming days will be quite busy on the economic and political fronts. First of all, of course, with the FOMC’s meeting tonight and Jerome Powell’s press conference immediately after. US growth figures, expected to be in line with the previous 4.2%, will be published tomorrow.

In the political arena, the UK Labour Party’s annual conference in ends today. Jeremy Corbin’s remarks on Brexit will be of particular interest to the markets as discussions between Theresa May and Brussels are still deadlocked and the spectre of new elections looms over the United Kingdom.

Switzerland will be on the agenda for once. After yesterday’s announcement of the resignation of Johann Schneider-Amman (PLR) from the Federal Council for Economic Affairs for the end of the year. A similar decision could be quick to come from Doris Leuthard (PDC) Dean of the Federal Council in charge of DETEC (Federal Department of Environment, Transport, Energy and Communication). Ms Leuthard’s resignation would mean a double election at the government before the end of the year and a few months away from the 2019 federal election.

Levels

EUR/USD 1.1765 DOW JONES 26’492.21
USD/CHF 0.9645 SMI 9‘021.61
EUR/CHF 1.1350 BRUT 72.15
USD/RUB 65.82
XAU/USD 1’200.00