USD

On Wednesday, as expected, the Federal Reserve confirmed they would be leaving interest rates on hold at near zero for years to come whilst also forecasting a jump in economic growth as the pandemic unwinds. By the end of the year, the Fed forecasts that growth will be as much as 6.5%, which would be the largest rise since 1984. Unemployment is forecast to fall 4.5%, while inflation is set to exceed the central bank’s target of 2% to as high as 2.4%. However, it’s expected to fall back to that target in 2022. Seven of eighteen officials now expect to raise rates in 2023, compared to five in December with four members now believing that rates may have to rise as early as next year.

Although the worst effects from the pandemic appear to be over, Fed chair Jerome Powell stressed that the positive outlook for the economy would not mean that support would be removed early. “The strong bulk of the committee is not showing a rate increase during this forecast period,” Powell said during a news conference to discuss the policy meeting, referring to the 2021-2023 time frame. Powell also commented that there was no plan to taper the central bank’s current monthly asset purchase facility, which saw stocks end the day on a high.

GBP

Today the market will turn its attention to the Bank of England’s (BOE) interest rate decision, but like across the pond, rates are set to remain on hold. Last week’s BOE/TNS inflation survey of economists showed that they expected inflation to be at 2.7% by the end of the year. Even in 2022, expectations are for it to stay above the BOE’s target at 2.2%.

There was also a slight increase in the percentage of economists who expected interest rates to rise during the next year, moving to 35% from 33% but none expect a rate cut. With this in mind, it looks unlikely that the BOE will look to cut interest rates, at least for now, whilst we wait for the full effects of Brexit to be known. As long as rate cuts are not mentioned, the pound will likely stay supported with any hawkish comments potentially giving the pound a boost. 

Key Announcements

11:00 – EUR: ECB President Largade Speaks

12:00 – GBP: UK interest rate decision 12pm
Forecast: 0.10%

12:00 – GBP: UK monetary Policy Summary

12:00 -GBP: MPC official bank votes
Forecast: 0-0-9 

12:30 – USD: US Philly Fed Manufacturing index