USD — Rate hikes are almost certain
FOMC members will meet on Wednesday this week and are widely expected to raise rates by 75 bps to bring the Fed Funds rate to 4.00% at the end of the meeting. In a tweet on Friday, WSJ’s Fed whisperer, Nick Timiraos, confirmed this by stating that “the Fed is not dependent on data points, and next week’s 75 bps decision seems unlikely to change…”. September’s CPI was still high at 8.2% (down slightly from August), but the Core-CPI was 6.6%, higher than August’s 6.3%.
Ultimately, inflation readings are on the rise rather than falling, the economy is growing again after two consecutive quarters of declining GDP, and job creation continues apace as the number of job openings exceeds the number of unemployed. It seems that employment numbers have stayed strong through the month of September, and October’s NFP data, which will be released on Friday, is expected to remain strong with 220,000 new jobs added to the economy.
GBP — BoE Playing it safe
Needless to say, it’s been a big month for the BOE. The Bank of England will meet on Thursday to discuss interest rate policy. The last interest rate meeting was a big disappointment for markets due to current PM Truss’ “mini-budget.” Market expectations reached 150bps at one point. Recent events however have resulted in Liz Truss resigning, and Rishi Sunak has taken over as Prime Minister. The market has settled down, with interest rates and bond yields returning to pre-Truss levels. With the budget crisis in the rearview mirror, the sterling is realigning with its classic drivers — monetary policy and risk sentiment.A 75bps rate hike is expected for this week’s meeting, bringing the key rate to 3%. In September, CPI was 10.1% YoY compared to 9.9% YoY in August. In the last week, the sterling appreciated by 2.75%, making it the best-performing G10 currency. The weekly gain was the third in a row. Last week, it reached almost the (38.2%) retracement objective of this year’s decline after nearing $1.1640 in the middle of the week. In the next few days, there is potential for additional gains, even if modest.
EUR — A flood of data from the Eurozone
In euroland, the third quarter’s GDP growth and the October inflation figures will get the ball rolling today. The unemployment rate will be released on Thursday. The recent decline in energy prices suggests that the winter won’t be Armageddon after all as European business surveys indicate an economy on the verge of recession.With Fed/ECB policy also convergent, the outlook for the euro is not as bad as it once was. However, the euro seems to be recovering from the worst of its troubles, which would require a ceasefire in Ukraine and a brighter economic outlook worldwide.
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Source: Weekly Market Outlook: FOMC, RBA, BOE Meetings to Watch