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Week heats up with US interest rate call

After a lacklustre start to the week, things start to heat up today when the US Federal Reserve makes its decision on interest rates. the markets are expecting a 25 basis point hike to bring their base rate up to 4.75%, the highest level since September 2007. The big question is whether this will be the last interest rate hike for the time being or whether there will be further small increases in the months ahead. We won’t know that until the press conference which is at 19:30 hours GMT. The US dollar has strengthened ahead of this evening’s meeting. GBPUSD is roughly a cent lower than yesterday at $1.2320 and the EURUSD rate is still below the $1.09 level. We have the Bank of England and European Central bank interest rate decisions tomorrow. 

Euro gains ahead of expected rate hike

We will see the German manufacturing sector purchasing managers index this morning. The markets aren’t forecasting very much change, they’re expecting it to remain on the negative side of the index at 47. 50 being the breakeven between optimism and pessimism. We will also see the eurozone consumer price inflation data this morning. A minor slow-down from 9.2% in December to 9.0% in January is the consensus forecast. That is unlikely to stay the hand of the European Central Bank, which is expected to hike the eurozone base rate by 50 basis points tomorrow. as with the US fed, the devil will be in the detail of the statement that accompanies that decision and the ECB could always put the cat amongst the pigeons by not meeting the market expectation. For now, the euro is still below 1.09 against the US dollar but has managed to make some gains against the pound, pushing the GBPEUR rate down to €1.1325 as of this morning.

Brexit deal struck over Northern Ireland

The UK and EU appear to have agreed to a deal that would end the impasse over the border within the island of Ireland and the EU has finally conceded that disputes raised in Northern Ireland would not be heard by the European courts. This may be the breakthrough moment that cuts the red tape and allows us all to move on from the Brexit deal. The markets have yet to react but, with the UK and EU interest rate decisions due tomorrow, that is perhaps no surprise. We have little other data from the UK today but we did hear that UK shop price inflation hit a record 8.0% last month. I don’t think anyone was too surprised by that sterling starts Wednesday a little above USD 1.23 and just above EUR 1.13.

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