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February 2017

Federal Reserve leaves interest rates unchanged

Published: Thursday 02 February 2017

‚Äč
  • Federal Reserve leaves interest rates unchanged
  • Bank of England expected to hold interest rates later today
  • Brexit bill clears first hurdle in Parliament  
The Dollar is slightly weaker as it continues its decline after the Federal Reserve left interest rates unchanged as widely expected. Markets still expect a rate hike later this year as the Federal Reserve fund futures are pricing in 17.7% chance of a March hike and a 69.0% chance of a hike in June. 
 
Only minor changes were seen in the accompanying statement. In short, policymakers retained the stance that future interest rate change would be 'data dependent'. They also reiterated that economic conditions will evolve in a manner that will warrant only gradual increases in the Federal fund rate'. 
 
The Brexit bill managed to pass its first hurdle yesterday with a huge majority in parliament. Despite opposition from the Scottish National Party, (SNP) a three line whip from Labour leader Jeremy Corbyn ensured that the bill would pass. We can now safely say that the process of leaving the EU has begun. The passing of the bill has removed one of the elements of uncertainty and it is now very likely that Prime Minister May will be able to trigger Article 50 at some point in March.
 
The Bank of England (BoE) meets today on what has been dubbed "Super Thursday", as we also get the minutes of the meeting and the inflation report. The Central bank is expected to keep interest rate unchanged at 0.25% and hold Asset Purchase target at GBP 435 billion. The key focus is on the quarterly inflation report. It's widely expected that BoE would raise inflation and growth forecasts, which will feed speculation of a rate hike.
 
However, policymakers view on the impact of Brexit to growth is still quite unclear and although markets are pricing in a 50% chance of a hike in 2017, the Bank of England still forecast mid-2019 for its first hike.
 
Bank of England Governor Carney and European Central Bank Chief Mario Draghi both speak at lunchtime so there is certainly some scope for volatility later today.
 

Riddles


Johnny‘s mother had three children. The first child was named April. The second child was named May. What was the third child‘s name? 
Johnny of course.

Before Mt. Everest was discovered, what was the highest mountain in the world?
Mt. Everest. It just wasn’t discovered yet.

What word in the English language is always spelled incorrectly?
Incorrectly. 
 

Today's Major Economic Releases
 

Market
BST
Data/Event
Previous
Expected
GBP
09:30 UK: Construction Purchasing Managers' Index
54.2
53.9
EUR 10:00 EU: Producer Price Index  0.3% 0.5%
GBP 12:00 Bank of England Inflation Report    
GBP 12:00 Bank of England Bank Rate Votes 0-0-9 0-0-9
GBP 12:00 Bank of England Monetary Policy Summary    
GBP 12:00 Bank of England Official Bank Rate 0.25% 0.25%
GBP 12:00 Bank of England Asset Purchase Facility 435b 435b
GBP 12:00 Bank of England Asset Purchase Facility Votes 0-0-9 0-0-9
EUR 12:15 European Central Bank President Draghi speaks    
GBP 12:30 Bank of England Governor Carney speaks    
USD 13:30 US: Unemployment Claims 259k 251k
 
Daily Currency Analysis by Ricky Nelson