03/11/16 - FED Hold Rates Market still Pricing in December Hike

GBP

The Pound rose to a two-week high against the Dollar yesterday, pushed by uncertainty surrounding the US elections. Donald Trump appears to be edging closer to victory in opinion polls in recent days, following the FBI’s reopening of a probe into Hillary Clinton’s email server. Any strength in Sterling, however, is likely to be due to a weaker Dollar, as Brexit fears remain the driving force.

This afternoon, the Monetary Policy Committee will announce it’s decision on interest rates. Following last week’s growth figures showing that the UK economy was 0.5 per cent larger between July and September than three months earlier, as well as inflation pressures, no change is expected.

A leading think tank has forecast that UK inflation will quadruple to about 4% in the second half of next year and cut disposable income. The rise in prices will "accelerate rapidly" during 2017, as the collapse in Sterling is passed on to consumers, according to the National Institute for Economic and Social Research (NIESR). The report said that while the effects of the drop in the value of the Pound would push up inflation by making imported goods more expensive, the economy could also be hurt by the simple action of triggering Article 50 to leave the EU next Spring. The body did however upgrade it’s growth predictions to 2% for 2016, followed by 1.4% in 2017.

 

USD

 

Global stocks are at the lowest levels seen since July, and bonds have climbed with gold, as investors move into safe haven assets on the back of US election jitters. 

Late Thursday the US Federal Reserve held interest rates steady again while continuing to acknowledge that the case for a move is getting stronger. Federal Open Market Committee officials also   made no direct comment on a  December rate hike meeting, a move that markets are strongly anticipating. Heading into the meeting, traders had been pricing almost no chance of a move this week, but with a 73.6 percent chance of a December hike. 

The Fed has held off on further tightening as inflation remains below the 2 percent target, though the jobless rate is close to what the central bank considers full employment. officials described job gains as "solid" and saw household spending "rising moderately," However, the Fed continue to be anxious about the pace of business investment, which tailed off in the third quarter, a sentiment also expressed after the last meeting.
 

Key Announcements

12:00 – GBP : BOE Inflation Report
 
12:00 – GBP : MPC Official Bank Rate Votes
 
12:00 – GBP : Monetary Policy Summary
 
12:00 – GBP : Official Bank Rate expected to remain unchanged at 0.25%
 
12:30 – GBP : BOE Gov Carney Speaks
 
14:00 – USD : ISM Non-Manufacturing PMI expected to fall to 56.0 from 57.1