Federal Reserve raise rates ahead of BoE meeting

20 December, 2018

Rob Bastin

As UK Politicians continue to argue among themselves and further delay any real progress on Brexit, yesterday provided a host of key data releases to give a refreshing focus ahead of the festive break. The morning announcements were for UK Inflation, with results coming in exactly as expected at 2.3% on the year and 0.2% growth in November. With no big surprises in the figures, the pound was unable to find any reason for gains and slipped across the board throughout the morning session.

In the afternoon session, the focus switched across the pond to inflation figures for Canada with the yearly figures posting a lower than expected 1.7%, down from 2.4% last month. Off the back of this, the pound was able to make some small recoveries against the Loonie in what is a very restrictive market for Sterling.

Parliamentary disagreements aside, the big news of the day had to wait until the evening when the Federal Reserve delivered their final interest rate decision of 2018, with the markets very much expecting another rate hike of 0.25% to take the base rate up 2.5%. At 7 pm the markets were not left disappointed as the Fed confirmed a rate increase of 25 basis points although the USD has had little change such was the market expectation, with traders looking closer at the accompanying statement for further guidance on likely hikes in 2019. In this statement the Fed indicated that more interest rates hikes would conditionally be coming in 2019, however, they were slightly more cautious leading to many banks adjusting their forecasts from 3 hikes to 2 hikes throughout the year, likely timed around spring and autumn.

As the market gear up of the Xmas break, there is still some last minute data to get through over the next 24hrs. This morning is again the UK focussed with Retail Sales figures at 9:30am, followed by the Bank of England interest rate decision at midday. Given the current Brexit limbo, this meeting is likely to be a bit of a non-event with all policies expected to hold until further progress and details are known. For anyone who is still needing to transact before year end, tomorrow is the last full working day for Currency Index before we re-open again for shorter days on Thursday 27th.