Can he, Carney, follow the Fed?
US retail sales data printed at 0.1% up in November, missing expectations of a 0.3% gain. Industrial production data also fell short, but PPI data was stronger than expected with a 0.4% increase in headline and core readings. As the data preceded the interest rate decision, there was muted impact on the Dollar.
The Fed finally raised interest rates by 0.25%, to 0.75%, after a unanimous vote, a mere 12 months after the last hike. The Fed’s accompanying statement revealed that the raise is due to realised and projected job market strength, in addition to rising inflation.
The 2017 Fed Funds rate median projection was revised up to 1.4% from the 1.1% seen in September, with a majority of participants expecting at least three rate hikes during 2017. The Dollar gained sharply following the rate projections. The lack of significantly dovish [https://www.currencyuk.co.uk/help/jargon-buster/#Dove] remarks from Janet Yellen encouraged a further round of aggressive Dollar buying; the Euro dipped to test the 2015 low around 1.0465 and the Pound fell as low as 1.2500. The US CPI data will be watched closely today for further evidence of inflation.
The UK unemployment rate is still at 11-year lows, but there was a decline in employment for the quarter. The claimant count increased by 2,400 for November and there has been only one monthly decline since June’s EU referendum. Average earnings increased by 2.5% from a revised 2.4% which maintained confidence in consumer spending levels, but increases at this pace should not put much upward pressure on inflation.
Sterling fluctuated around 1.1900 against the Euro and continued to hit resistance above 1.2700 against the Dollar. The Fed’s move is liable to overshadow today’s Bank of England policy decision. Governor Carney predicts a slow down in growth next year and with a continuation in price growth (inflation), and interest rates are expected to remain unchanged.
There were also comments that it could take much longer than expected to secure Brexit trade deals which may unsettle Sterling.
Data to watch: 8.30am German Flash Markit November PMIs, Manufacturing, Services & Composite. 9am Euro Flash Markit November PMIs, Manufacturing, Services & Composite.
9.30am UK November Retail Sales. 12pm UK BoE Interest Rate Decision, meeting minutes, Voting, Asset Purchasing. US Consumer Price Index (Nov), CPI Core, nsa & Ex food & energy. Initial & Continuing Jobless Claims. Philly Fed Manufacturing. Nov Flash Markit Manufacturing PMI & Dec NAHB Housing Price Index.