A New Era
After all the talk, the Bank of England kept interest rates at 0.75%, in line with recently adjusted consensus expectations although a number of institutions had still expected a cut. There were only 2 votes to cut rates, the third successive meeting with a 7-2 split. Inflation forecasts were shaved and growth projections saw a sharper decline. The central bank forecasted domestic uncertainty to reduce and a pick up in global growth, possibly requiring a modest increase in interest rates. Should the recovery not occur, interest rates may need to be cut to support growth and return inflation to target. Given the Bank being on the fence, economic data will be crucial in shaping expectations. Futures market pricing showed potential for Q1 interest rate cut fell to near 15% from 80%, triggering a Sterling move to near 1.3100 against the Dollar and 1.1884 on the Euro. A global equities rally shored up sentiment sentiment and the Pound settled near it’s daily peak.
Today’s UK focus will be Britain’s long-awaited exit from the European Union. Boris Johnson’s pre-recorded speech, slated for broadcast at 10pm, could play a key role in driving the near-term sentiment surrounding the Pound.
The Federal Reserve unanimously voted to keep interest rates unchanged at 1.75% on Wednesday afternoon.
US initial jobless claims declined to 216,000 in the latest week from 223,000 previously. The advance reading for fourth-quarter GDP recorded a figure of 2.1% which was in line with market expectations and unchanged from the previous quarter. Consumer spending growth slowed sharply for the quarter and non-residential investment continued to decline. Government spending increased at a notably faster pace and a slide in imports had a technical impact on pushing GDP growth higher. Inflation readings were slightly lower than expected. The data breakdown was seen as troubling and there was a shift in interest rate futures with the potential for a March interest rate cut at 17.5% from 7.2% on Wednesday.
The Euro is on track to post its biggest monthly decline against the Dollar in six months. The pair are currently trading at 1.1023 figure, representing a drop of over 1.7%. The biggest monthly loss since July 2019.
Consumer spending, as represented by Retail Sales, is forecasted to have dropped by 0.5 month-on-month in December, following November’s rise and the annualized figure is expected to have risen by 5%.
Later in the day, the focus will switch to the Eurozone’s GDP for the fourth quarter.
Data to watch
08:00 – EUR – Spanish Flash GDP
10:00 – EUR – CPI Flash Estimate
13:30 – USD – Core PCE Price Index
13:30 – USD – Employment Cost Index
13:30 – USD – Personal Spending
14:45 – USD – Chicago PMI