Fed and BoE meetings this week
The euro ended lower against the dollar and sterling last week following Thursday’s ECB meeting, albeit remaining within well established ranges, and kicks off this week trading at around $1.0840 and 85.3p respectively. The pound was broadly flat against the US currency last week and is hovering just north of $1.27 this morning. It is the turn of the Fed and Bank of England to take center stage this week, with the former meeting on Tuesday/Wednesday and the latter on Thursday.
In government bond markets, European yields fell last week as the market priced an increased chance of a rate cut at the ECB’s April meeting. Meanwhile, European equity markets had another positive session on Friday, closing more than 1% higher to take gains for the week to over 4%.
Increasing tensions in the Middle East sees oil prices higher again this morning with Brent crude above $84 per barrel (and up more than $10 p/b since early December).
The annual rate of PCE inflation in the US remained at 2.6% in December according to the latest reading published on Friday, while the core – or underlying – inflation rate fell further to 2.9%, a full two percentage points lower than in December 2022.
When the Fed left policy on hold for a third straight month in December, its Chair, Jerome Powell, highlighted the “real progress” on inflation and said members believed interest rates had “probably peaked”, adding that the question of when to lower them was “coming into view”. While the Fed is unlikely to signal at this week’s meeting that it is preparing to cut rates, no doubt Powell will be quizzed on when it might do so at the accompanying press conference.
The Bank of England’s (BoE) decision to leave interest rates unchanged at December’s meeting was another close enough call, with three (of nine) members again voting for a quarter-point hike. It will be interesting to see if there is dissent again on Thursday, but in any case, with both wage growth and services inflation remaining elevated, the BoE will probably reiterate that “monetary policy is likely to need to be restrictive for an extended period of time”.
Apart from the central bank meetings, there are some important economic data scheduled for this week as well, including Euro area GDP (Q4) and CPI inflation (January) on Tuesday and Wednesday respectively and the January employment report in the US on Friday.