Summary:

• Republicans lose Alabama seat in the Senate, USD pares earlier declines though

• Investors stay cautious ahead of Fed meeting

• UK wage growth speeds up, whilst employment falls more than expected

Overnight, political developments pushed USD lower across the board. AUD was supported by better than expected consumer sentiment data along with recovery in oil prices caused by API report published yesterday. Investors on global equity markets stay cautious ahead of Fed meeting. Moreover, the UK unemployment stays at a 42-year low and wage growth speeds up, though it still lags behind inflation.

A special election for a US Senate seat saw the Republican majority diminished, which bodes ill for reforms planned for the next year, thus USD was the weakest currency among G10 this morning, however, it has managed to pare most of earlier losses. The debacle in Alabama also puts a pressure on Republicans to speed up efforts to implement the tax bill before this date as their majority is to dwindle to 51-49 from 52-48 seats.

The AUD was the strongest currency across the board overnight as the consumer confidence improved this month suggesting that consumption could get a boost in upcoming months. The Westpac Consumer Confidence Index came in at +3.6% m/m to 103.3 pts after a drop of 1.7% m/m in November. It’s the best result in 4 years and may mean that the consumer confidence has bottomed out already.

Investors around the world have been on the safe side ahead of a string of key central bank meetings. In Asia, only Chinese benchmarks managed to post larger gains. European session started with modest moves, although most of the indices are slightly in the red now. Besides Fed’s interest rates decision, it’s also worth looking at the President Trump’s speech regarding tax reform.

The UK labour data surprised to the upside when it comes to wages, but the jobs prints slightly disappointed. GBP reacted positively to these figures as the earning readings are the most important factor for investors recently. However, note that the real incomes could further deteriorate as the pace of inflation is still above the wage growth. The average wages without bonuses came in at 2.3% y/y, whilst the consensus had called for +2.2% y/y. On the other hand, earnings with bonuses rose in line with forecasts to 2.5% y/y from 2.3%.

Undoubtedly, the Fed meeting is the most important market event today, as the Federal Reserve is expected to lift interest rate for the third time this year and there are many uncertainties surrounding the policy path for the next year. However, it’s not the only key point for the USD in Wednesday’s calendar as we get the US CPI figures as well. Oil traders should await monthly Opec report and DoE inventory data – it could confirm a large drop in the crude stocks suggested by API estimates.