- All eyes on Brussels today
- Sterling strong in advance of UK interest rate announcement
- US raises their interest rates
- Euro performance rests on European Central Bank monetary policy
By Zafer Deniz
All eyes on Brussels today
Theresa May is due at a summit in Brussels today after Conservative rebels in the commons defeated the government last night In a key Brexit vote. Members of Parliament (MPs) backed an amendment giving them a legal Guarantee of a vote on the final Brexit deal struck with Brussels. This means, unless it is overturned by the UK government at a later stage, MPs will get to vote on the final deal reached before it is ratified. May has long argued that this would delay the process and jeopardise their chances of a smooth exit, but it seems that Sterling traders were unfazed by the news and the EU is expected to give approval to move to the second phase.
Sterling strong in advance of UK interest rate announcement
Sterling was trading strongly ahead of the Bank of England (BoE) rate decision at 12:00 PM today. Since the last policy meeting, the UK economy firmed, with wages rising, inflation increasing, house prices accelerating and most importantly, economic activity strengthening. UK Retail Sales figures released at 09:30 AM today show continued growth for the UK retail industry in November 2017. There has been monthly growth across the board – sales of household goods in particular – with electrical items reporting the strongest advance, and also a notable increase in food store sales.
US raises their interest rates
Moving on to the US, the Federal Reserve raised rates to 1.5% and instead of rising, the US Dollar sold off aggressively against all major currencies. This was on the back of Federal Reserve Chair Janet Yellen’s concerns about low inflation, which she feels “could be more ingrained than temporary”. Policymakers also kept their inflation projections steady and lowered the US unemployment forecast to 3.9% for 2018 from 4.1%. All in, these forecasts make the Federal Reserve take a more aggressive policy stance, but investors cared more about Federal Open Market Committee members, Evans and Kashkari, who voted against a hike this month because of low inflation. For these reasons, some reports say that the US Dollar tanked after the rate hike. US Jobless Claims data will be released at 13:30 this afternoon. We watch and wait for the ripple effects from all these policy updates on the USD…
Euro performance rests on European Central Bank monetary policy
The focus turns to the European Central Bank (ECB) and BoE monetary policy meetings. Of the two, markets are expecting the ECB announcement to have a greater impact on currencies. No policy change is expected, but unlike the BoE, ECB President Mario Draghi will hold a press conference. With Draghi having cut Quantitative Easing (QE), he will have no desire to make any changes, reports say.
And he also made it clear that he has no plans to raise interest rates until QE ends. December Purchasing Managers’ Indices (PMI) were released this morning before Draghi speaks, so we will be keeping a close eye on exchange rates. Draghi speaks at 12:45 today. The Eurozone economy continued its widespread improvement and ended 2017 with strong results across all the key European economies, including positive overall figures for France, Spain and Germany.