The Pound strengthened against the US Dollar and the Euro as the Bank of England (BoE) is expected to announce its decision on interest rates. Economists believe that the board will keep the benchmark interest rate on hold at 0.5%. A report published by the Office for National Statistics (ONS) showed that UK retail sales spiked in November, mainly because of British shoppers taking advantage of Black Friday offers.

The European Central Bank (ECB) is also expected to announce that it is keeping its interest rates unchanged. The two-day EU Summit starts today with Brexit negotiations being at the top of the agenda. In the US, the Federal Reserve raised its benchmark interest rate by 0.25% as it had been anticipated.

Pound Sterling – UK Markets

Today, the Pound strengthened against the US Dollar with the exchange rate set at $1.34. Sterling also edged up against the Euro with the exchange rate set at €1.13. The Monetary Policy Committee (MPC) of the BoE is expected to announce its decision on interest rates in the afternoon.

Market experts said that, having raised borrowing costs in the previous month’s meeting, the MPC won’t repeat it today. City economists believe that the recent Brexit deal with the EU, high UK inflation and the moderate salary growth are not going to affect the MPC’s decision. They note that possibly the BoE board will try to analyse the impact of the first interest rate hike in ten years on the UK economy. Taking into consideration the economic data published in the last months, they said that the BoE will hike borrowing costs again in the last months of 2018.

The ONS published the results of its November survey regarding retail sales. As the survey showed, UK retail sales jumped by 1.6%, on an annualised basis, surpassing all expectations. Even on a month-to-month basis, retail sales surged more than anticipated, coming in at 1.1% instead of 0.4%. Market analysts noted that Black Friday sales played a significant role in the spike. They also stressed that online sales dwarfed any other kind of sales, especially in the second half of the month.

US Dollar – US Markets

The US Dollar inched lower against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY), which measures the strength of the Dollar against six major currencies, remained stable at 93.46.

The Federal Reserve announces that it raises interest rates by 0.25% as it was anticipated by markets. This means that the Fed’s benchmark interest rate currently stands at 1.5%. In its statement, the Fed left the rate outlook for the coming years unchanged, predicting a short-term jump in economic growth due to the tax cuts planned by the Trump administration. Fed policymakers suggested that there will be three more interest hikes in 2018 and 2019.

US core inflation in November came in at 1.7%, on an annualised basis, missing analysts’ expectations. Lower healthcare costs and a significant drop in apparel prices were the main contributors, forcing inflation further away from the 2% target set by the Federal Reserve. Economists suggest that the absence of a sustained pickup in core inflation may complicate the way the Fed tightens its monetary policy in the future.

Euro – European Markets

The Euro inched higher against the US Dollar with the exchange rate set at $1.18. The ECB is expected to announce its decision on interest rates later in the afternoon.

Economists believe that the ECB board will keep its interest rates unchanged. The reduction of the asset purchase programme, which was announced in October, is going to start in January so analysts are not expecting some significant change in monetary policy. However, they stress that they will have the opportunity to read how the quantitative programme (QE) will be composed after the scale down and the updated ECB growth and inflation projections for the next years.

IHS Markit released December’s preliminary data regarding services and the manufacturing sector in Eurozone countries. In the Eurozone as a whole, the composite PMI came in at 58.0, surpassing expectations for a 57.2 reading. Economists noted that the composite PMI figure is now consistent with a 0.8% GDP growth in the fourth quarter of 2017. In Germany, the manufacturing sector hit a record-high, with Markit’s PMI coming in at 63.3 beating all expectations.

Other Currencies – Highlights

Sterling fell against the Australian Dollar, trading at 1.75 AUD. According to the Australian Bureau of Statistics (ABS), the participation rate increased in November to 65.5%, exceeding expectations. A report by TDS said that the ABS employment survey confirmed that 2017 is the year of strong labour market dynamics. Analysts at TDS stressed that 80% of jobs created to date are full-time, this way explaining the rapid acceleration in hours worked.

The Pound jumped against the New Zealand Dollar, trading at 1.91 NZD. Westpac economists said that they anticipate a 0.4% rise in the third quarter’s GDP. They noted that the slowdown in growth during the September quarter is due to temporary factors such as lower milk production and a decline in tourist spending. They also stressed that lower imports are going to narrow the current account deficit to 2.5%.

Sterling inched higher against the Swiss Franc, trading at 1.32 CHF. The Swiss National Bank (SNB) board kept the benchmark interest rate at -0.75% as it was anticipated.