No Hike, To Hike or Not to Hike? & Political Posturing.

As anticipated the Federal Open Market Committee kept interest rates on hold in the US, the Federal Reserve however, have started to taper their bond buying program, scaling back their $120bn bond buying by $15bn a month.

In comments following the announcement, Fed Chair Jerome Powell commented that the tapering of their quantitative easing program was not an indication of future rate hikes. Mr. Powell went on to say the Fed “can be patient” as well as commenting that though inflation is currently running at 4.4% “well above” their 2% target this inflation would be temporary subsiding in Q2 and 3 next year. CME’s Fed Watch toll is predicting the earliest the FOMC will hike rates if in their June 2022 meeting.

Focus now turns to the Bank of England and today’s interest rate announcement. Given the FOMC’s stance yesterday members of the MPC may be inclined to buy themselves more time to assess the inflationary pressures the UK is experiencing. Bloomberg are reporting that the decision is on a knife edge with probability at 50-50.

We can expect markets to be choppy today with traders positioning themselves into the announcement and reactionary trading thereafter as Governor Bailey speaks.

In a de-escalation in tensions between the UK and France, an impounded British vessel has been released. Recently President Macron has been on a tour de force, in an attempt to garner support with Presidential elections due next year. Macron has a 64% disapproval rating, though he leads in early polls from his nearest rival Marine Le Pen. Where Macron to lose the election the landscape of politics within the EU would have changed drastically in under a year.

Established parties in the blocks 2 largest economies would have lost power. There is already a void at the top table left my Former German Chancellor Angela Merkel Stepping down. A power vacuum could cause euro weakness.

Economic Calendar

All DayOPEC-JMMC Meetings
12:00Asset Purchase Facility875B875B
12:00MPC Asset Purchase Facility Votes0-2-70-2-7
12:00MPC Official Bank Rate Votes0-0-90-0-9
12:00Monetary Policy Summary
12:00Official Bank Rate0.10%0.10%
12:30Unemployment Claims273K281K
1:00ECB President Lagarde Speaks
1:00BOE Gov Bailey Speaks

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.