ECB rate hike expected on 22nd December

The purchasing managers’ indices from across the eurozone and in the UK were largely in positive territory yesterday. Hence the GBPEUR exchange rate traded in a fairly narrow range with €1.1875 at its centre. You may have missed that because the TV news was so rapt by the Prime Minister’s ill-advised anecdote about Peppa Pig. Aaaaanyway, the UK data diary is light this morning. Other than the CBI industrial trends orders, there isn’t a lot to talk about. The forecast for that data is very upbeat though so do be prepared for a little bit of sterling strength.

The EURUSD range was also pretty narrow; $1.1240 to $1.1270 covers it. Those positive PMI’s have done nothing to dissuade traders that the ECB will raise their base rate on the 22nd December. That’ll be a super Christmas Gift for investors but a slap for those with debt or seeking a mortgage. That is perhaps less impactful in the EU, where property rental is more of a norm than in the UK or US.

FOMC minutes awaited for hints of interest rate and QE change

The US purchasing managers indices were less convincing than those from the EU and the UK. The Composite Index was slightly down on the previous month at 56.5. That is still in positive territory but these things are all comparative. This afternoon’s US diary is far more important though. It includes the personal consumption and expenditure indices, which looks set to put a little more pressure on the Federal Reserve to raise interest rates. We will also see U.S. economic growth data for quarter three. The forecast is for a 2.2% growth rate in the three months to September, up from 2% in the previous quarter. With growth at that sort of pace, the Federal Reserve may well have the space it needs to start tightening monetary policy and that would strengthen the US dollar.

The GBPUSD rate is still caught below 1.34 and, as you can imagine, anything that suggests earlier US interest rate hikes will have a tendency to push this right lower. WE will see the minutes from the last Federal Reserve Open Market Committee meeting later this afternoon. Not wishing to sound like a stuck record, I’ll avoid reminding you that hints of the timing and pace of monetary tightening are the only comments of interest the traders will be looking for. U.S. dollar buyers and sellers may wish to avoid risk by trading before 19:00 GMT.

RBNZ hikes rates and promises more

The Reserve Bank of New Zealand raised its base rate to 0.75% overnight. That was one of the most widely expected outcomes of their meeting, so the GBPNZD rate actually rose ahead of the announcement but they have also warned that they will be raising the base rate again in the near future. So GBPNZD hit 1.9390 before an announcement of the reopening of NZ borders caused a change of direction and a drop to this morning’s NZD 1.9350. For NZ investors, that 25 basis point hike will come as a relief but home buyers are facing higher costs at a time when inflation is also picking up. The last time GBPNZD was at this level was mid-October and NZD 1.94 has been pivotal in the past. If the upward trajectory continues, NZD 1.9650 is the next target and that too has been a breakpoint for rallies in the past.

And it is Celebrate Your Unique Talent Day. I wonder if that includes the ability to tie your own shoelaces with your tongue whilst wearing the shoes. Just asking for a friend.

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