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December 2016

Fed rate rise awaited

Published: Monday 12 December 2016

  • Fed rate rise awaited
  • BoE likely on hold on Thursday 

Sterling remains largely unchanged after a weekend in which even more obstacles to Brexit were presented. This week’s big event will be a big non-event, most likely. The Bank of England (BoE) is almost certain to leave all alone when they meet on Thursday. This is in spite of what are expected to be stronger retail, employment and inflation figures during the week. The BoE has made it clear that they will be looking past inflation to ensure the UK economy is growing robustly before hiking the base rate and most of the growing inflation is imported through higher commodity prices and a weaker Pound. So tightening the money supply would have little impact.
 
This week is highly likely to bring a US interest rate rise. The markets have almost entirely factored that in. So, if it happens, the impact on the USD is likely to be minimal. However, if the Federal Reserve chooses to hold off from an immediate rate hike, the Dollar is susceptible to a short, sharp selloff. If you can say that three times fast without saying ‘shelloff’, well done! In fact, even if the Fed does hike interest rates by 25 basis points, there may still be some USD weakness as traders take profit on their correct bets. The counterpoint to that argument is the question, ‘where else would you put your money?’. Investors are getting little yield from anywhere, so the safety of the relatively stable US economy is quite a beacon for investor moths.
 
This week will also bring employment data from Australia and New Zealand, but the forecasts suggest that the figures might disappoint the markets. If that is so, then the Aussie and Kiwi Dollars are likely to weaken; especially in light of strong labour market data from elsewhere.
 
And I had to check whether it was 1st April before mentioning this. KFC, the chicken people, have released a scented candle for the Christmas period. It doesn’t smell of mulled wine and satsumas or pine needles and cinnamon. Nope, this candle smells of KFC’s famous fried chicken. I guess nothing says Christmas like fried chicken, does it?
 

Checking

 
Little Wayne attended a horse auction with his father.
 
He watched as his father moved from horse to horse, running his hands up and down the horse's legs and rump, and chest.
 
After a few minutes, Wayne asked, "Hey Poppa, why are you doing that?"
 
His father replied, "Because when I'm buying horses, I have to make sure that they are healthy and in good shape before I buy.”
 
Wayne, looking worried, said, "Dad, I think the pool guy wants to buy Mom."

 

Today's Major Economic Releases
 

Market BST Data/Event Previous Expected
GBP 14:30 UK: The Conference Board Leading Index 0.1% 0.1%
USD 18:00 US: 10-year Bond Auction  2.02 | 2.2 2.02 | 2.2
USD 19:00 US: Federal Budget Balance -44.2b -99.5b
NZD 21:45 New Zealand: Manufacturing Sales 2.2% 2.2%

Daily Currency Analysis by David Johnson
 
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