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It was always going to be a quiet morning in financial markets, as everyone awaits the result of the US Federal Reserve’s deliberations. It is not the fault of the FOMC, really – they have striven to play down the taper as a small change in policy and not the beginning of the end – but the markets have managed to work themselves up regardless. Given the excitement surrounding the event, the gut reaction of almost everyone is to sit on their hands and await developments.
In London we have had our own bit of central bank fun, with the latest set of Bank of England minutes. Yet again there was no change on interest rates or quantitative easing among the members’ voting, but the tone was fairly upbeat. However, although Threadneedle Street shows no sign of emulating the move in Washington towards tighter monetary policy, the view of traders seems to be quite different. The pound has now pushed to its highest level against the US dollar since mid-January, as markets continue to take the view that the UK economy is entering, at long last, a self-sustaining cycle of improvement.
Investors in housebuilder Redrow cheered the return of the dividend, as the sector continues to benefit from the government’s efforts to get more buyers on to the housing ladder. At one pence per share it is more of a symbolic move, but cautious optimism is better than the 'blue-sky thinking' that helped get the country into the crisis in the first place.
In the US, housing starts and building permits act as hors d’oeuvres to the main event this afternoon. As well as the actual decision on rates, we will hear whether tapering will actually take place, and in what size, and to round off the day current chairman Ben Bernanke will give a press conference. We expect only quiet trading in advance of all this, and at present the Dow is expected to start 20 points higher at 15,550.