Barclays on the euro and the Fed
The main event of the week is the September FOMC meeting on Wednesday and Barclays Capital Research expects no change in interest rates and the announcement of the start of balance sheet normalization, following the blueprint revealed in the June meeting.
"Although the expected announcement of balance sheet reduction (BSR) at this week's Fed meeting is unlikely to be a material mover for markets, we think the Fed will keep the option of a December rate hike alive amid subdued market pricing.
Indeed, after last week's upside surprise in US CPI, we have retained our call for a 25bp December rate hike and our rates strategists remain positioned in 2s10s Treasury flatteners, an environment that is usually accompanied by significant USD appreciation. In that respect, a move in front-end rate differentials should lead the EURUSD to weaken this week," Barclays argues.
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