Good morning, everyone.

Today is one of the most awaited days in financial markets as the US central bank, Federal Reserve, is due to release the interest rate decision during the US session. Before this, inflation reports from the United Kingdom and Canada will be worth monitoring. Are you ready for a big day?

Watchlist – Key Economic Events

GBP – CPI y/y – 8:30

Back in May, UK’s inflation had risen from above the 2% target but is set to fall back to 2% in June. The Sterling is trading lower as investors are “pricing in” weaker inflation forecasts right now, and weaker expectations may result in an upside surprise, favoring the pound.

The weaker inflation numbers aren’t something Bank of England aims for. BOE’s target is to keep inflation rate over 2%, and it can’t hike the interest rate until consumer prices exhibit stability. The general trend remains to the downside and may provide a selling opportunity on GBP/USD.

In the case of positive CPI, the BOE has a higher chance of maintaining the upbeat rhetoric on raising interest rates if inflation rises.

CAD – CPI m/m – 12:30 GMT

The Canadian dollar has been gaining largely against the US dollar as investors are keeping the dollar a bit weaker over dovish FOMC sentiments. With that, US-Canada interest rate differentials narrow in Canada’s favor.

Today, Canadian CPI figures for May are anticipated to point out that inflation picked up to 2.1% in yearly terms, from 2.0% earlier. Indeed, the estimate is backed by the Markit manufacturing PMI for the month, which recorded a ‘solid uptick’ in prices imposed by firms.

Furthermore, the retail sales for April that are scheduled to release on Friday are anticipated to jump by 0.2% every month, much lower than the robust 1.1% previously, but still a positive print overall.

Fed Monetary Policy Meeting – 18:00 GMT

Today, all eyes remain on the Federal Reserve and the interest rate decision. The Fed will be the first of the three central banks to offer its policy statement this week and is anticipated to hold the Fed funds rate unchanged at the target range of 2.25-2.50%.

Investors are convinced that a rate cut at the following meeting in July is a certain decision, and traders are more interested in the forward guidance. Traders could be disappointed if the Fed falls short of giving apparent signs of lowering borrowing costs.

FOMC Statement
The FOMC statement is likely to acknowledge the slowing of jobs growth, which is still enough to keep the interest rate unchanged. Previously, the Fed maintained that the weaker inflation numbers were transitory. It may be too early to drop such views; the confidence in the assertion may have weakened.

Happy Trading!