16 December, AtoZForex.com, Lagos – No doubt, today marks one of the most anticipated days of the year so far. The Federal Reserve is set to announce its interest rate decision, which is very likely to be a commencement in rate hikes from record lows. However, the communication on further pace of liftoff is key as the possibility of a hike itself has been strongly priced into the market.
Yesterday, the inflation report from both the UK and US came in line with forecast. The November data on inflation from the UK showed consumer price increases edged up slightly, attributed to the decrease in in transport and food prices in November was less than in the same period last year. Core inflation also came at the highest level since July, accelerating to 1.2%, in line with forecast.
Besides the Fed rate decision, we also have key economic releases from the Eurozone and UK for today.
French and German data
With the new monetary policy stance of the European Central Bank, a pick up in economic operations is expected. The Flash Manufacturing PMI from both France and Germany are set to be released. Followed by the services PMI from both regions. A slight pickup in the indexes is expected as the general economic sentiment in the area is at a four month high, with the latest economic sentiment data reading at 33.9. The Euro fell against the dollar yesterday, having hit a strong resistance on the weekly chart. Fundamentally, the dollar is also strengthening in anticipation of rate hikes.
UK labor report (9:30 P.M GMT)
The average earnings index measures change in the price businesses and the governments pay for labor, including bonuses. The figure is forecast to fall deeper to 2.5 percent, even after data last month showed U.K. unemployment fell to the lowest in more than seven years in the third quarter, falling to 5.3% and is expected to remain at the same level or potentially fall further considering the consistency of the fall in the last three months. The claimant count change forecasts for 0.9%, a drop from 3.3% last month as the unemployment rate falls.
Fed rate decision
With the likelihood of a rate hike almost fully priced into the market, the major market mover is likely to be the Federal Reserve’s decision on subsequent hikes, going forward. That is, the pace of at which they decide to gradually hike rates over the course of time. Barclays projects a 25bp rate hike this week, followed by three hikes next year, bringing the target range for fed funds to 1.00- 1.25% by end-2016. The dollar has resumed its bullish position across board and is likely to strengthen further as we expect the rate decision.
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