The U.S. dollar is rather quiet to start the week as investors gear up for a heavy dose of central bank meetings this week.
Overview
The Fed’s interest rate decision on Wednesday and the European Central Bank and Bank of England’s decisions on Thursday will demand most of the headlines, but we will also hear from the central banks of Mexico, Norway, Switzerland, Taiwan, and the Philippines. It is widely expected that the U.S. Federal Reserve will hike their rates by 50 basis points, slowing down from 75 basis point hikes earlier this year. There is a slight chance the central bank surprises with another 75-basis points hike. Most also expect Fed Chairman Jerome Powell to indicate that the Fed expects another 50-basis point hike in 2023 and to leave rates unchanged after that for the rest of next year. As such, the press conference following the decision on Wednesday afternoon will be the largest risk event on this week’s calendar. While the economic docket is light today, there is one more piece of important data due out on Tuesday ahead of the Fed meeting. The Consumer Price Index will hit the tape tomorrow morning at 8:30 a.m. Economists are forecasting that price pressures to ease but to remain well above the Fed’s target. A higher-than-expected reading tomorrow will up the chances of the Fed surprises with a 75 basis point hike, but our base case is still for the Fed to hike half a percent.
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇑
The Euro is up three-tenths of a percent against the U.S. dollar to start the week. The focus in the Eurozone will also be on monetary policy. The European Central Bank is expected to raise interest rates by half a percent on Thursday. In addition to changing its main financing rate, we expect to get more guidance on how the central bank plans to reduce its quantitative easing program (APP) by reducing its balance sheet.
GBP ⇑
The British pound is a touch stronger against the U.S. dollar this morning. A report showed that the U.K. economy expanded in October, bouncing back from the holiday following the death of Queen Elizabeth II. GDP rose 0.5% in October from September. However, the quarterly print is still concerning as the British economy shrank over the three months through October. Despite slowing growth, the Bank of England is widely expected to raise interest rates by 50 basis points on Thursday to slow inflation. Indeed, inflation in the U.K. is at a 41-year high. Much like with the U.S. Fed, there are some that expect the BoE to hike rates by an aggressive 75 basis points, but we find that unlikely as the Bank tries to balance slowing growth with high inflation.
