There was a muted reaction to the UK inflation data with the data providing slight relief, but not expecting a significant impact on Bank of England policies. There was still solid Sterling buying on dips with support against the dollar and a move higher at the European close as the dollar drifted lower. Sterling dipped lower in an immediate reaction to the Fed policy statement, but again found support and recovered. Weaker risk appetite hampered Sterling on Thursday as it remained stable against the dollar. Consensus forecasts are for the Bank of England to increase interest rates by a further 50 basis points at the latest policy meeting, but with expectations of a split vote and relatively dovish rhetoric from the central bank
Key Data
12.00 Bank of England Interest Rate Decision Exp. 3.5% Curr. 3%
12.00 Bank of England Minutes
12.00 Monetary Policy Summary
Markets expect a 50 basis-point rate hike by the ECB with forward guidance from the bank also a key element during the day with overall risk trends also likely to be a significant element. The Euro did see initial dips following the Federal Reserve data last night but did manage to recover. Industrial production in Europe fell in October to -2%, with expectations of -1.5% and well below the reading from the previous month which showed 0.8% growth.
Key Data
13.15 European Central Bank Interest Rate Decision Exp. 2% Curr. 1.5%
13.15 European Central Bank Monetary Policy Statement
13.45 European Central Bank Press Conference
The Fed increased interest rates by 50 basis points to 4.50% from 4.00% which was in line with consensus forecasts and the vote was unanimous. The statement reiterated that the Fed was highly attentive to inflation risks while there had been modest spending and production growth. It repeated that interest rates are expected to increase further to obtain a sufficiently restrictive policy. It did, however, add that the committee will take note of lags associated with monetary policy. The latest forecasts of interest rates from individual committee members, the 2023 median estimate on the Fed Funds rate was increased to 5.1% from 4.6% previously with the 2024 estimate increased to 4.1% from 3.9%. Market expectations of peak rates increased slightly to 4.9% from 4.8%. Chair Powell reiterated that he anticipates that further rate increases will be necessary and that the labour market remains out of balance and very constrained despite a decline in vacancies. Powell added that the Fed still sees inflation risks skewed to the upside and again warned that it would be a mistake to ease policy too quickly. According to Powell, the estimate of peak rates could move up or down depending on the data with the February decision based on economic and financial conditions. Powell was confident that inflation would fall significantly next year and, although he poured cold water on the possibility of rate cuts next year, he did add that policy is getting close to being restrictive enough.
Key Data
13.30 Retail Sales (MoM) (Nov) Ex. -0.1% Prev. 1.3%
13.30 Retail Sales Control Group (Nov) Exp. 0.3% Prev. 0.7%