The forex markets remained steady as markets await two key events of the week. The first one is BoE minutes to be released during European session. Markets expected the minutes to show unanimous decisions during the March meeting to held the main refinancing rate at 0.50% and kept the asset purchase target at GBP 375b. The main focus is indeed on MPC members' view regarding recent fall in inflation. Last week, BoE governor Mark Carney said that it's "extremely foolish" to add monetary stimulus to counter the oil price triggered temporary plunge in UK inflation. We'd expect such view to be shared among MPC members. Nonetheless, any hints that BoE would keep rates near zero longer than expected would likely trigger deeper fall in GBP/USD and a rebound in EUR/GBP. Meanwhile, UK will also release employment data.
Another main focus is FOMC rate decision. The focus of the FOMC meeting would be on the forward guidance. In particular, the market would closely watch whether the sentence that "based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy" would be removed. This act would send a strong signal that the Fed might begin tightening in coming months (market expectations are June or September.
In the semiannual testimony, Chair Janet Yellen linked the "patient" language to the rate hike schedule. As she mentioned, "the FOMC's assessment that it can be patient in beginning to normalize policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings". She also indicated that the committee would change its forward guidance in advance of rate hikes, though the change does not automatically signal a rate hike in a couple of meetings.
As the Fed retained the "patient"' language in the January meeting, it suggested that policymakers did not expect to lift rates in either the March or April meeting. We believe removal of the "patient" language in March would heighten the likelihood of tightening in June. Meanwhile, with removal of the "patient" language, the new direction of the forward guidance would emphasize data-dependence and should tie rate hikes more to the inflation outlook. More in FOMC Expected to Remove Patience Language, a Step Forward to Tightening.
Elsewhere, New Zealand current account deficit narrowed to NZD -3.19b in Q4. Australia Westpac leading index rose 0.3% mom in February. Japan trade deficit widened to JPY -0.64T in February. Eurozone will release trade balance, Swiss will release ZEW expectations. Canada will release wholesale sales.