The Pound, Euro, and US Dollar exchange rates are tentative ahead of this afternoon’s Federal Open Market Committee (FOMC) interest rate decision; expectations are that the Federal Reserve is 75% likley to hike rates.
UK Inflation Falls, Pound Sterling (GBP) Exchange Rate Little Changed
In terms of UK consumer prices, data showed inflation fell in November, hitting a 21-month low at 2.3% on the year, down from 2.4% in October. The shift lower has allowed average earnings to outpace inflation, with a current growth of 3.3%. The development is good news for UK citizens ahead of Christmas, offering a much-needed boost. Lower petrol prices have helped to weaken inflation, as well as games, toys, and cultural services. Tobacco, accommodation, and sea transport have been pushing inflation upwards.
UK inflation declined to 2.3% in November, thus pushing real wage growth further into green. In coming months, it will be interesting to observe whether profit and turnover warnings from the retail sector will translate into a broader discounting of goods #macrobond pic.twitter.com/b86QWDhjUU
— Ulrik Harald Bie (@UlrikBie) December 19, 2018
UK CPI inflation fell to 2.3%y/y in November from 2.4%y/y in October, with core inflation falling from 1.9%y/y to 1.8%y/y. Fuel and recreational items & services were the main drivers. pic.twitter.com/hhoLdOM9pa
— Rupert Seggins (@Rupert_Seggins) December 19, 2018
Meanwhile, in the Eurozone, Italy reached an overnight deal with Brussels after its recent dispute. The Italian Treasury said that ‘a technical agreement with EU officials’ which may bypass an ‘excessive deficit procedure’ had been made.
US Dollar (USD) Exchange Rate Awaiting Direction from Fed’s Interest Rate Decision
In the US, all eyes are turned to the Federal Reserve and today’s monetary policy decision. While interest rates look around 75% likely to increase, US President Donald Trump didn’t miss the opportunity to voice his opinion.
I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!
— Donald J. Trump (@realDonaldTrump) December 18, 2018
However, although the Fed is largely expected to hike interest rates for the fourth time this year today, there’s a growing consensus that the central bank may cut the number of forecast hikes for the year ahead. Fed Chair Jerome Powell will hold a press conference after the meeting concludes and the news reaches markets.
Economist Carl Tannenbaum commented:
‘You are at an inflection point. You are most likely seeing growth slowing and you don’t know how much growth and what kind of growth is left over after the fiscal stimulus wears off. And that’s why they don’t know if they need zero, one, or more rate hikes.’
The Pound to US Dollar (GBP/USD) exchange rate is trending in the region of 1.2647. The Pound to Euro (GBP/EUR) exchange rate is trading at interbank levels of 1.1103.