A critical driver in the foreign exchange market, and the global capital markets more generally, is the continued preparation by the Federal Reserve for a rate hike, while many other central banks, including the ECB, warn investors that more accommodative monetary policy may be necessary. In the days ahead, the economic data and official speeches will be understood in the context of building expectations.

After Draghi’s press conference following the ECB meeting last month, market expectations for more monetary stimulus is running high. However, while many market participants view it as a done deal, it is not clear that a consensus has been forged. The recent economic data suggests that expansion continues apace, and if not impressive, steady. Core inflation is running at 1.0% year-over-year, which while soft, is not signaling a deflationary spiral. Moreover, the European economic locomotive, Germany, is expected to have found better traction after a weak August, and both orders data and industrial output data is forecast to have bounced back.

As we noted last week, the euro zone economic data does not seem consistent with the sense of urgency Draghi’s expressed recently. Either the economic data stream deteriorates, or it will be difficult to reach a consensus for new bold action. If the economic data is in line with consensus, suggesting that the eurozone expanded by 0.4% in Q3 as it did in Q2, which is also the average quarterly growth since the middle of 2014, then the risk is that the pendulum of expectations swing back to mild action. An increase in the duration of the purchases may be more likely than buying more, or cutting rates deeper into negative territory, as had seemed possible following Draghi.

The Federal Reserve cannot be very disappointed with Q3 GDP figures. As it had anticipated, the largest inventory swing in four years weighed on headline growth, but final domestic sales (excludes inventories and net exports) rose 2.9%. Although this is slower than Q2’s 3.7% pace, it is better than 2014 (~2.4%) and H1 2015 (~2.3%). It speaks to the resilience of the US economy. Moreover, after tax income rose 3.5%, allowing consumption to add 2.2 percentage points to GDP and an increase in savings.