Fed Interest Rate Decision and Market Movements.

GBP: In September, the Bank of England made the decision to maintain interest rates, with a majority of its members voting to keep rates steady. Limited UK data available in the six weeks following the meeting made it unlikely for BOE members to change their stance. However, recent inflation figures for September revealed a 0.5% monthly increase and a 6.1% year-on-year rise in core CPI, slightly exceeding expectations. As a result, it’s reasonable to anticipate that those members who voted for a rate hike last month will do the same this week. The only significant change is Jon Cunliffe, who previously supported a rate increase but has left the committee. Sarah Breeden, who will be voting for the first time at this week’s MPC meeting, might hold a decisive vote. Nevertheless, it’s probable that at her inaugural MPC meeting, Sarah will align with consensus, leading to a 6-9 split in favor of maintaining rates. Despite this, the central bank cannot afford to adopt a dovish stance, given the UK’s persistently high inflation, a tight labor market, and uncertainties surrounding fiscal policies, especially with upcoming elections in January.

USD: The Federal Reserve meeting on Wednesday is unlikely to result in any significant policy changes, which aligns with market expectations. It’s highly improbable that policymakers will make any interest rate adjustments. Recent economic data has given the Fed room to deliberate on their next move. Despite a slowdown, inflation remains elevated, and the economy continues to grow at a healthy pace, despite the highest benchmark interest rates in years. Market observers will be closely watching Chair Jerome Powell and the Federal Open Market Committee for hints about their future direction. The focus will be on their messaging rather than any actual policy changes. Powell is expected to strike a cautious tone, avoiding sounding too hawkish, as he navigates the delicate balance.

EUR: Despite a recent downside miss in the German economy, the Euro briefly strengthened against the US dollar before retracing to previous levels. Over the past few weeks, the Euro has been gaining ground against the British Pound, breaking through a key resistance level. EUR/GBP is now trading at its highest level since early May and has convincingly crossed all three simple moving averages. The former resistance has now transformed into support around 0.8700, with the 20-day simple moving average at 0.8680 serving as the next support level. If the Euro continues to strengthen, the next horizontal resistance level is at 0.8828.

Economic Calendar