UK CPI Rises, FOMC Meeting Begins Today
Among global economic news, UK and US inflation data are the highlight for today. The already out UK CPI data indicated that the economy managed to make its way out of mild deflation in November, as the fall in energy prices were less severe than a year ago. In the US, November inflation figures will be the last bit of significant data arriving ahead of the Federal Reserve’s (Fed) monetary policy decision tomorrow. However, any improvement or deterioration in the US CPI update at this juncture is unlikely to influence the Fed which is slated to begin its policy meeting later in the day.
In a short while, the ZEW survey is poised to reveal the prevalent sentiment in the Euro zone and German economies.
Pound Sterling – UK Markets
The Pound – US Dollar currency pair has extended its overnight recovery further after the just released UK economic data revealed that a brief period of negative inflation came to a halt in November, though the price pressures have continued to remain almost absent. Official figures indicated that the UK inflation rate edged up in November, in line with market estimates as transport costs and tobacco prices were the major drivers to the rise, while a dip in clothing prices weighed on inflation. However, the sharp slide in oil prices this month has increased the likelihood that Britain could slip back into deflationary territory before the end of this year and act as a significant barrier to the BoE in taking a more hawkish approach towards its interest rate decision. The UK central bank held rates at record low last week against the backdrop of weak price pressures, recent rout in oil prices and sign that wage growth has stagnated.
The US Fed will begin its two-day meeting today to decide on raising rates for the first time in almost a decade and a favourable decision could weigh on trading in the currency pair.
US Dollar – US Markets
The greenback has nudged lower against most of the major currencies this morning, as investors tread cautiously ahead of the Fed’s monetary policy meeting that will begin today. The increasing likelihood of Fed raising its benchmark interest rate tomorrow combined with rate increases in the next few years have created a ripple across the global economy. Expectations of a Fed rate rise strengthened after the central bank noted that the job market was fully healthy for the policymakers to lift rates toward normal levels.
Investors are now seeking assurance and keeping a close eye on the further path of the rate rise. One factor that could act as a barrier to the pace of rate increase is the absence of inflationary pressures. Inflation remains below the Fed’s desired level and in fact today’s numbers are projected to show fresh weakness for last month. Markets expect November headline CPI to ease in monthly terms and the core CPI is projected to remain unchanged. However, the US inflation data at this stage is unlikely to make a substantive impact on the Fed’s rate decision tomorrow.
Euro – European Markets
This morning, the common currency has continued to inch higher again against the US Dollar after touching a five-week high in the previous session. Meanwhile, investors wait on the sidelines ahead of the upcoming US Fed interest rate decision that could rekindle volatility in trading in the currency pair. The Euro has been relatively flat since it had a remarkable turnaround early this month when the ECB had given a go-ahead to only limited stimulus easing measures in its comprehensive bond buying programme despite the Euro zone economy languishing with little growth or inflation. The certainty that the US Fed will raise its interest rates tomorrow could weigh on the Euro against the US Dollar. Ahead of the meeting, the Euro might come under pressure as the German and Euro zone ZEW economic sentiment reports are scheduled for release today. If the reports fail to live up to expectations, the shared currency could quickly surrender gains and head downwards.
Yesterday, the ECB Chief defended his latest policy announcement and committed to an extension of the asset purchase programme if needed.
Other Currencies – Highlights
The Reserve Bank of Australia (RBA) released the minutes of its latest monetary policy meeting earlier today, wherein the central bank highlighted that the recent wave of economic data had been generally positive. The optimism was attributed to very low borrowing rates which supported growth in household consumption and dwelling investment. Additionally, the RBA reiterated that the Aussie Dollar lent support to domestic production, while adjusting to significant declines in key commodity prices. The central bank’s narrative was consistent with recent surveys which have suggested that local business conditions are above average level. The minutes indicated that the RBA was open for further easing given the inflation outlook and it would continue to evaluate the economy to decide whether the current state of monetary policy is effective for sustaining growth. However, the Aussie Dollar barely moved against the greenback after the publication of minutes.
In today’s economic news, Australia’s house price growth eased in September quarter, largely because of the cooling of the Sydney and Melbourne markets.