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Busy Week as the UK and US Hold Their Monetary Policy Meetings

  • December 12th, 2016
  • Author: Simon Birch
Busy Week as the UK and US Hold Their Monetary Policy Meetings

This is a crucial week for the US and UK economy watchers, as central banks at both countries hold their monetary policy meetings. In the US, a quarter point interest rate rise by the Federal Reserve (Fed) is widely expected and has been fully priced in by investors. The focus will now be on the Fed’s economic projections, for signs of any change following Donald Trump’s surprise victory in the US Presidential election. In the UK, in addition to the decision on interest rates and quantitative easing, the Monetary Policy Committee is also set to release minutes from the meeting. Ahead of the decision, Britain will witness the release of consumer prices, employment and retail sales data.

Today is a relatively quiet day for economic releases across the globe. While the Eurozone economic calendar wears a deserted look today, the sole data-point in the US is the monthly budget statement for November. In Britain, data showed that UK house prices declined in December.

Pound Sterling – UK Markets

The Pound is trading lower against the greenback and the Euro this morning. Earlier in the session, a report by property website, Rightmove, showed that British house prices dropped further in December. Separately, Britain’s leading business group, the British Chambers of Commerce (BCC), modestly revised up its UK gross domestic product forecast for next year, citing the stronger than expected economic performance displayed by the nation so far after the Brexit vote. However, the group downgraded the nation’s growth forecast for 2018 over expectations that higher inflation in the UK would curb household consumption and that the nation would witness muted levels of business investment during the period.

It’s a busy week ahead for Britain. With the nation’s key inflation data up for release, it is likely to define the trajectory of Sterling with its other currency counterparts for much of the week. Additionally, the BoE will hold its monetary policy meeting later this week and is widely expected to keep interest rate steady.

US Dollar – US Markets

The greenback advanced against most of its major peers on Friday, following the release of upbeat US consumer sentiment index. The flash print indicated that consumer sentiment advanced to its highest level in nearly two years in December, indicating increasing confidence amongst Americans as they expect newly-elected President Donald Trump’s administrative and fiscal policies to enhance the nation’s economic growth. On the other hand, the final wholesale inventories fell as previously estimated in October, while wholesale trade sales rose more-than-expected in the same month.

This morning, the US Dollar is trading higher against the shared currency and is on an equal footing to the Sterling. The US economic calendar looks dull with just the monthly budget statement up for release ahead in the day. Going forward, all eyes will shift towards the most crucial event of the week i.e. the Federal Open Market Committee’s two-day monetary policy meeting. The possibility of Fed raising rates has been fully priced in by the investors and they will watch out for signs of further policy tightening in 2017.

Euro – European Markets

The shared currency ended in the red last week, following the European Central Bank’s (ECB) unexpectedly dovish move. In its last monetary policy meeting of the year, the ECB revealed that it intends to continue the bond-buying programme at a monthly pace of €60 billion from April 2017 until the end of December 2017, or beyond, if necessary. Meanwhile, the central bank left its benchmark interest rates unchanged. Apart from this, another major development that took place in the Eurozone during the past few weeks is the triumph of the ‘No’ vote in the Italian constitutional referendum which made the nation’s Prime Minister, Matteo Renzi, to announce his resignation.

This morning, the Euro is trading on a weaker footing against the US Dollar and the Pound. The Eurozone data calendar is devoid of any economic releases today. Looking forward, with the Fed’s monetary policy meeting scheduled this week, the monetary policy divergence between the US and the Eurozone will be back in the limelight.

Other Currencies – Highlights

The Japanese Yen is trading on weaker footing against the US Dollar this morning, falling for the fourth consecutive session. A string of Japanese economic releases crossed the wires earlier in the session. Data showed that Japan’s domestic corporate goods price index, that measures the price companies charge each other for their goods and services, rebounded above expectations in November. Moreover, the nation’s core machinery orders, which is regarded as an indicator of capital spending during the next six to nine months, brushed aside past market expectations and recorded its first increase in three months. This comes as good news for policymakers in the world's third largest economy, who have set their hopes on capital spending to foster sustainable growth in the nation.

In other economic news, figures from Japan’s Ministry of Economy, Trade and Industry showed that the nation’s tertiary activity index edged up in October, reversing its September decline. Further, a preliminary reading of the nation’s machine tool orders slightly improved on an annual basis in November.

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