Fed's meeting will be watched closely

The meeting of the United States Federal Reserve was the key event in the US and the world this week, Craigs Investment Partners broker Chris Timms said yesterday.

The Fed would meet tomorrow and Thursday (NZ time) and the Fed decision and new economic forecasts would be released at 6am on Thursday, followed by a press conference by Fed chairwoman Janet Yellen at 6.30am.

A fortnight ago, market pricing suggested a 30% chance of a Fed rate hike at the meeting. But after the much weaker May payrolls report, the market now saw no chance of a move this week, Mr Timms said.

The focus would be on where the Fed believed the economy was going and what the "dot plot'' suggested for the remainder of the year. In March, the dot plot suggested Fed officials thought two interest rate rises were appropriate this year.

The market would pay close attention whether that was still the case or if the Fed now believed only one hike was more likely, he said.

The Bank of Japan and the Bank of England also meet this week. Both were relevant but would still take a back seat to the Fed.

No change was expected from the Bank of England although with the `"Brexit'' vote looming, more commentary on the vote was expected, Mr Timms said.

The Bank of Japan would be closely watched. Many believed more stimulus was inevitable. There was a chance the Bank of Japan would choose to surprise the market with additional easing, especially with the Group of Seven (G7) meeting out of the way, he said.

The British pound fell to an eight-week low against the US dollar yesterday amid trepidation before the referendum that could push Britain out of the European Union.

The New Zealand dollar touched its highest level against the British pound in 13 months and is approaching the 50p level, following recent signs British voters are leaning towards an exit from the European Union.

The British pound sank after the publication of an ORB poll for the UK's Independent newspaper before the June 23 referendum showed the "leave'' camp opened up a 10-point lead over "remain'', with 55% planning to vote to leave and 45% intending to vote to stay. The margin had widened from a 51%-49% split in the equivalent poll in April. Most economists expected Brexit would hurt the UK economy.

"As the GBP remains under pressure, the NZD/GBP has the 0.50 level firmly in its sights. The cross last traded above this level in April last year,'' Bank of New Zealand senior market strategist Kymberly Martin said in a note. "The fate of this cross remains in the hands of the UK referendum, which is now only 10 days away.''

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