Any market action today will be both tentative in terms of risk taking and limited in terms of direction, ahead of the Fed FOMC decision. Equities pulled back overnight while US Treasuries rose as markets tried to second guess what the Fed will do at its policy meeting. The USD meanwhile appears to have benefitted from some, albeit limited pre FOMC short covering amid thinning year end liquidity. Firmer data, especially in the US jobs market over recent weeks and the recent budget deal have raised the odds of tapering being announced tonight although a move in January still looks more likely.
Whether the Fed takes its foot off the QE pedal tonight or in January is probably a moot point however, as the bottom line is that tapering is very much going to happen and markets will need to adjust sooner rather than later. Ahead of the Fed decision there are some useful data releases on tap which may at least provide some direction including the December German IFO survey which is set to improve slightly, UK jobs data and the Bank of England MPC minutes. No change is likely to be revealed in terms of voting in the MPC minutes.