Asian markets moved higher on Thursday as concerns eased over troubled Chinese property giant Evergrande. In an effort to sooth jitters around the struggling real estate firm, the People’s Bank of China injected $17 billion into the financial system. European stocks have opened higher, following positive cues from Wall Street overnight after the Fed signaled tapering could start ‘soon’.

King dollar hit its highest level in a month this morning before retreating, while gold extended losses. Despite the rebound witnessed across equity markets, sentiment remains shaky with caution in the air. The debt woes of China Evergrande Group are likely to remain on the minds of investors for the rest of the week. Other risk events to watch out for range from the Bank of England rate decision and Eurozone PMI surveys on Thursday to numerous speeches from Fed officials on Friday.

FOMC prepares markets for tapering

As widely expected, the Federal Reserve left monetary policy unchanged in September. Although no official announcement of tapering was made, Fed Chairman Jerome Powell said the central bank could begin cutting bond purchases as soon as November with the process completed by mid-2022.


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GDP growth for 2021 was revised lower to 5.9% from 7.0% in its June 2021 projections but growth in 2022 and 2023 was upwardly revised. Inflation is still described as “largely transitory” and was adjusted significantly higher once again.

But the focus was all on the dot plot for Fed officials’ interest rate projections. Back in June, seven officials were forecasting a rate rise in 2022. However, the latest dot plot shows nine officials, resulting in a split 9-9 on whether rates will be hiked next year. While this hawkish shift is likely to fuel rate hike expectations, it points to the market being much more sensitive to US economic data going forward.

After kissing the monthly high at 93.52, the Dollar Index slipped this morning with prices approaching the 93.20 level as of writing. Although the Fed meeting is done and dusted, the next few days could see increased volatility due to the US weekly initial jobless claims and numerous speeches from Federal Reserve officials.

BoE meeting in focus

The major risk event for sterling will be the Bank of England policy meeting this afternoon. Markets widely expect the central bank to leave monetary policy unchanged. However, much attention may be directed to what the bank has to say about the recent spike in inflation after consumer prices hit 3.2% in August, its highest rate since March 2012.

It is also worth keeping in mind that the BoE was split evenly last month on whether the minimum conditions for a rate hike had been met. All eyes will be on whether the two new committee members impact this balance.

Looking at the technical picture, GBPUSD remains bearish on the daily charts. Sustained weakness below 1.3670 could open a path back down towards the July low at 1.3570. Alternatively, a solid move above 1.3670 could mean an advance towards 1.3750 might be on the cards.

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