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Market Update

• Posted by currencies in Bank of England, Currency, Dollar, Economy, EUR, Fed, GBP, Inflation, Rate Cuts, Rate Hikes, UK, Uncategorised
• December 15, 2023
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Yesterday morning markets reacted to the Federal Reserve’s more aggressive than anticipated tone on cutting rates in 2024. The USD lost ground to the majority of other currency pairs. There was more to come throughout the day with both Bank of England and the European Central Bank giving their outlook on the future.
 
First out was BoE, who held their interest rate decision for December. No surprises really that they kept levels at bay of 5.25%. More importantly was the voting, with 3 out of 9 who would have preferred a hike to a total base rate of 5.5%. Markets reacted instantly of this hawkish tone from BoE, and at one point GBP/USD touched 1.2790 – which would show to be the resistance level for Thursday. Speculations has been that BoE will follow suit, like the Federal Reserve, and start pivot rates in 2024. After yesterday’s meeting a rate hike is still likely to happen in 2024, but data suggest that it will be delayed/occur later on in the year. The UK economy is still struggling with higher inflation levels than both US and Europe.
 
One hour after Bank of England’s release, it was ECB’s turn. The outcome was the same, no changes on their rate decision and the base rate was kept at 4.5%. In the press conference right after president Christine Lagarde’s focus was to rather discuss inflation levels than future monetary actions. She said that Europe is seeing that their inflation levels are coming down at a faster pace than what they forecasted earlier in the year. The current prognosis is that in 2025, inflation levels should be at their preferred levels of 2%. When it come to future actions, she did not want to give away any indications of when ECB could start to cut rates and that they still have work to be done.
 
Going into Friday’s session we can see that GBP/USD is still around the 4-month high while EUR/USD currently offers 1.0950. This was the last announcements from Federal Reserve, Bank of England and the European Central Bank for 2023. There is still important data releases next week, in particular core inflation and inflation rate for the UK.