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  • richard evans

Fed raise 50bps, now eyes on BoE and ECB

Good morning

The Fed did indeed raise rates by 50bps as widely expected and signalled there is more to come, with a median rate on the summary of economic projections (dot plot) at 5.1%, up from around 4.9% before. There were two dots below 5%, while a couple were up at 5.625% So the Fed remain hawkish, rates likely higher for longer, but they are also showing more signs of patience, in less rush to reach the peak, Powell even suggesting they could move to a 25bps rate rise in February if data confirmed this was appropriate. Market seems to be looking for three more 25bps rate rises in 2023 to eventually get rates to 5.25%.

US dollar had weakened leading into the announcement but did push higher immediately after, GBPUSD trading from 1.2435 to 1.2345 and EURUSD from 1.0680 to 1.0620. As Powell spoke, USD lost its gains and both GBPUSD and EURUSD pushed back to pre-release levels. Overnight though we have seen steady USD buying, taking GBPUSD all the way down to 1.2320 and EURUSD to 1.0625, with GBPEUR slipping through 1.1600 for the first time this week.

Aussie employment numbers were on the strong side overnight although inflation expectations were lower than expected. We have seen quite a move in GBPAUD over the past day or so having been down at 1.7985 yesterday afternoon, then hitting 1.8180 this morning. This upside area around 1.8200 has been tested, and has held, a few times since October. Indeed we need to go back to early March to see higher levels, we were well above 1.9000 in early 2022.

SNB have just announced a 50bps rate rise to 1%. So BoE and ECB both announce rates today and both are expected to also raise rates by 50bps, for the UK this will take rates to 3.5%, for the EU to 2%. The ECB decision looks more set in stone, whereas BoE is likely to see a mix of votes from members and I would not be surprised to see a more dovish tilt here despite inflation still being at exceptionally high levels. I would not even be surprised if BoE surprised with a smaller 25bbps rise, perhaps this possibility is a reson for GBP weakness this morning.

Congratulations to France for reaching the world cup final, overcoming a spirited display from Morocco. Despite their atrocious behaviour in their quarter final, I find myself dran to supporting Argentina in the final, it would be something of a dream come true for Messi at around the end of his exceptional career, and I’m not sure I want to see France win the cup twice in a row. Oh, and I backed Argentina at 10-1 after their surprise loss to Saudi Arabia in their first match.

So it remains cold here. Very cold. I have a photo of the car dashboard showing -9.5% Celsius this morning. The snow that fell over the weekend is still on the ground, the freezing conditions mean it just can’t melt. If we’re lucky we might get up to 1 degree briefly today. Now I don’t mind a bit of cold weather but it really shouldn’t be this cold unless I’ve got skis strapped to my boots. One of the coldest spells I can remember, particularly as this house I am in is a bit old and not particularly well insulated. However temperatures do look set to rise in a couple of days, to reach a rather balmy 14 degrees supposedly, and then to remain nicely above zero into Christmas.

- 08.30 SNB rate announcement

- 09.00 SNB press conference

- 12.00 BoE rate announcement

- 13.15 ECB rate announcement

- 13.45 ECB press conference

- 21.30 NZ business PMI

- 22.00 AUS S&P manufacturing, services PMI

- 00.01 UK GfK consumer confidence

- 07.00 UK retail sales

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