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Fed trims growth forecasts

Fed trims growth forecasts

GBP
Sterling remains confined within the 1.2600 Dollar range but has dropped into the 1.1000s against the Euro. UK Consumer price inflation rose just 0.2% in November and the annual CPI dipped to 2.3%, a two-year low. Core inflation also dropped to 1.8% on a yearly basis, meeting forecasts. The Pound’s reaction was relatively muted.

The UK retail sales report, due this morning, is forecasted to rebound 0.3% month-on-month in November, following a drop of 0.5% seen in October, and the annualized figure at 1.9%, down from October’s 2.2%. Core retail sales (excluding fuel), are forecast at 0.2% month-on-month and 2.3% year-on-year.

So, despite a healthy UK labour market, inflation dropped below the Bank of England’s (BoE) forecasts, the global outlook backdrop is weaker, and Brexit uncertainty has intensified, leading to speculation that the BoE will use more cautious rhetoric and the Monetary Policy Committee will unanimously vote to hold interest rates. It’s hard to see much positive Pound stimulus before the Christmas break.

USD

As was widely expected, the Federal Reserve (Fed) raised interest rates for the fourth time this year, by 25 bps, and now foresee fewer rate increases in 2019 (two) than projected at the September policy meeting. The US Dollar Index hence rose from 96.70 back above 97.00 and turned positive yesterday for the day.

The US central bank also lowered its growth and inflation forecast but the revisions were not as significant as anticipated by the market and hence, provided some immediate respite for the Dollar.

With investors looking past the latest Federal Open Market Committee monetary policy update, some renewed Greenback weakness has been seen this morning where the Greenback is sharply higher compared to the level it had been before the FOMC statement, particularly against commodity currencies.

EUR

News came out yesterday that the EU Commission will not be taking disciplinary action against Italy over their proposed budget after the adjustment of their deficit. The Euro seemed to rally slightly off the back of this news as the single currency hit 1.1443 versus the Dollar.

Another political factor affecting the single currency was the policy shift performed by Macron which could put the 2019 deficit up to 3.4% which would be in breach of the EU’s 3% limit. Having seen the EU’s reaction to the Italian situation, which is looking like a political retreat, markets reacted with the premium between Italian and German debt falling and Italian bond yields dropping.

Yesterday saw very little data released and it is much of the same today aside from the Bank of England’s Monetary Policy Committee meeting, the last of the year.

Data to Watch:

00:30 AUD Employment Change s.a. (Nov)
00:30 AUD Part-time employment (Nov)
00:30 AUD Fulltime employment (Nov)
00:30 AUD Fulltime employment (Nov)
00:30 AUD Participation Rate (Nov)
02:52 JPY BoJ Monetary Policy Statement
02:52 JPY BoJ Interest Rate Decision
n/a JPY BoJ Press Conference
04:30 JPY All Industry Activity Index (MoM) (Oct)
09:30 GBP Retail Sales ex-Fuel (MoM) (Nov)
09:30 GBP Retail Sales ex-Fuel (YoY) (Nov)
09:30 GBP Retail Sales (YoY) (Nov)
09:30 GBP Retail Sales (MoM) (Nov)
12:00 GBP BoE Asset Purchase Facility
12:00 GBP BoE Interest Rate Decision
12:00 GBP Monetary Policy Summary
12:00 GBP BoE MPC Vote Cut
12:00 GBP BoE MPC Vote Unchanged
12:00 GBP BoE MPC Vote Hike
12:00 GBP Bank of England Minutes
13:30 USD Continuing Jobless Claims (Dec 7)
13:30 USD Initial Jobless Claims (Dec 14)
13:30 USD Philadelphia Fed Manufacturing Survey (Dec)
23:30 JPY National Consumer Price Index (YoY) (Nov)
23:30 JPY National CPI Ex-Fresh Food (YoY) (Nov)
23:30 JPY National CPI Ex Food, Energy (YoY) (Nov)

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