Euro Area Inflation Rate Today as Attention Turns Towards Upcoming Interest Rate Decisions.

EUR: Although the data from Germany showed on Monday that inflation, as measured by the change in the Consumer Price Index (CPI), softened at a stronger pace than expected in October, EUR/USD continued to stretch higher. The US Dollar (USD) struggled to find demand as a safe-haven amid the bullish action in Wall Street and fueled the pair’s daily advance. After Israeli Prime Minister Benjamin Netanyahu stated that he will not agree to a cease-fire, investors have adopted a cautious stance, helping the USD erase some of Monday’s losses. Later in the session, Eurostat will publish the Harmonized Index of Consumer Prices (HICP) data for October. Markets forecast annual HICP inflation in the Eurozone to decline to 3.2% from 4.3% in September. Following the German inflation report, a soft HICP print from the Euro area could be ignored.

GBP: The Pound could be set for deeper falls over the coming weeks if the Bank of England allows financial markets to bring forward the expected timing of the first interest rate cut of 2024. But, the Bank will avoid such an outcome when it meets this Thursday, according to one of the UK’s best economists. Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, says the market’s takeaway from Thursday’s interest rate decision and guidance will be that interest rates will be maintained at current levels for an extended period. Tombs, who has frequently been judged the UK’s most accurate economics forecaster, says the Bank will opt to keep interest rates unchanged, and “changes to the MPC’s forecasts and guidance will be more newsworthy this time.”

USD:

1. **Federal Reserve Interest Rate Expectations**: The bond market is currently indicating a 99.5% probability that the Federal Open Market Committee (FOMC) will not raise interest rates at its upcoming meeting. If this expectation holds, the central bank’s benchmark federal funds rate will remain in the range of 5.25% to 5.5%.

2. **Potential Rate Hike in December**: The bond market is also pricing in a 23.5% chance that the FOMC may proceed with one final 0.25-point rate hike at its December meeting. This suggests that while a rate increase is not expected with high certainty in the near term, there is still some possibility of a rate hike by the end of the year.

3. **Concerns of an Inverted Yield Curve**: An inverted U.S. Treasury yield curve is typically seen as a warning sign of economic troubles. It can indicate that short-term interest rates are higher than long-term rates, which is often associated with economic slowdowns or recessions. Inverted yield curves can signal expectations of future economic weakness.

4. **Falling Savings Rates**: Falling savings rates can be a concern, as it may indicate that consumers have less disposable income to save due to rising expenses or stagnant income. This can impact overall economic stability and the ability of individuals to prepare for the future.

5. **Slumping Home Sales**: Slumping home sales are also a potential indicator of economic distress. A slowdown in the housing market can have ripple effects on related industries and overall consumer sentiment.

6. **Labor Market Resilience**: The information mentions that the latest employment numbers suggest that the labor market remains resilient. This is a positive sign as a strong job market can support consumer spending and overall economic growth.

7. **Upcoming Economic Data Release**: It’s noted that there is anticipation for the release of non-farm employment data on a specific Friday. Non-farm payroll data is closely watched by economists and investors as it provides insights into the health of the labor market and can influence future policy decisions by the Federal Reserve.

Economic Calendar