If the Fed’s interest rate decision on Wednesday was a ‘hawkish’ cut, sending the dollar higher, yesterday’s Bank of England MPC interest rate decision was a ‘dovish’ hold, sending sterling lower against the US currency and causing it to reverse course against the euro. The MPC voted 6-3 to keep rates at 4.75%, with the three dissenters favouring a 25bps cut. The narrower than expected vote (8-1 was thought more likely) weighed on the pound, which has declined further against the dollar to around $1.25 and retreated from a fresh multi-year high of around £0.8220 vis-à-vis the euro before the MPC announcement to trade at £0.83 this morning (with softer than expected UK retail sales data released a short while ago not helping). The euro remains under pressure against the dollar, trading at about $1.0390 having fallen close to its year-to-date low ($1.0335) during yesterday’s session. Later today, PCE inflation data for November are released in the US, which will be of interest given the Fed’s upward revision to the inflation outlook in its latest projections.
Yesterday’s Events
US government 10-year bond yields continued their post-Fed meeting ascent yesterday, rising to 4.55%, though 2-year yields nudged down a little. UK 2-year yields also fell slightly following the BoE rate announcement, but 10-year yields ended higher on the day, as did both German 2- and 10-year yields. In equity markets, US stocks ended broadly flat following Wednesday’s sharp fall, while European stocks shed almost 2%.
Retail sales volumes in the UK rose by 0.2% in November, only partially reversing October’s fall of 0.7%. Over the three months to November, volumes were up 0.3% on the three months to August and 1.9% higher than in the September-November period in 2023.
ECB member Nagel says the central bank “can certainly lower interest rates a little further… reaching a neutral level” in the first half of 2025, adding that the ECB now has “price increases well under control (with) wage pressures also easing across the entire currency area.”
The Day Ahead
Today’s PCE inflation data in the US are expected to show headline and core consumer prices both rose by 0.2% in November, according to the consensus forecast, which would push the annual inflation rates up to 2.5% and 2.9% respectively from 2.3% and 2.8% in October. Other data due today include a final reading for US consumer confidence in December and a first reading for December consumer confidence in the Euro area.
Today's Talking Points 20.12.2024
Market Commentary
If the Fed’s interest rate decision on Wednesday was a ‘hawkish’ cut, sending the dollar higher, yesterday’s Bank of England MPC interest rate decision was a ‘dovish’ hold, sending sterling lower against the US currency and causing it to reverse course against the euro. The MPC voted 6-3 to keep rates at 4.75%, with the three dissenters favouring a 25bps cut. The narrower than expected vote (8-1 was thought more likely) weighed on the pound, which has declined further against the dollar to around $1.25 and retreated from a fresh multi-year high of around £0.8220 vis-à-vis the euro before the MPC announcement to trade at £0.83 this morning (with softer than expected UK retail sales data released a short while ago not helping). The euro remains under pressure against the dollar, trading at about $1.0390 having fallen close to its year-to-date low ($1.0335) during yesterday’s session. Later today, PCE inflation data for November are released in the US, which will be of interest given the Fed’s upward revision to the inflation outlook in its latest projections.
Yesterday’s Events
US government 10-year bond yields continued their post-Fed meeting ascent yesterday, rising to 4.55%, though 2-year yields nudged down a little. UK 2-year yields also fell slightly following the BoE rate announcement, but 10-year yields ended higher on the day, as did both German 2- and 10-year yields. In equity markets, US stocks ended broadly flat following Wednesday’s sharp fall, while European stocks shed almost 2%.
Retail sales volumes in the UK rose by 0.2% in November, only partially reversing October’s fall of 0.7%. Over the three months to November, volumes were up 0.3% on the three months to August and 1.9% higher than in the September-November period in 2023.
ECB member Nagel says the central bank “can certainly lower interest rates a little further… reaching a neutral level” in the first half of 2025, adding that the ECB now has “price increases well under control (with) wage pressures also easing across the entire currency area.”
The Day Ahead
Today’s PCE inflation data in the US are expected to show headline and core consumer prices both rose by 0.2% in November, according to the consensus forecast, which would push the annual inflation rates up to 2.5% and 2.9% respectively from 2.3% and 2.8% in October. Other data due today include a final reading for US consumer confidence in December and a first reading for December consumer confidence in the Euro area.
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