The GBP is the strongest and the USD is the weakest as the NA session begins. The USD is continuing to take it's clue from the Federal Reserve decision yesterday where the Fed sharply lowered its expectations for the end of year Fed Funds rate to 4.60% from 5.10% in September. The current rate is 5.50%.
Focus now turns to the BOE and the ECB. The BOE has already announced their decision and rates remains unchanged. They also are still split on future policy action (or have a debate at least). Highlights from their decision:
Vote Outcome: The Bank rate vote ended in a 6-3 decision, which was in line with expectations. Greene, Haskel, and Mann were the members who voted for a 25 basis points increase.
Decision Nuance: The choice between hiking rates or holding them was again a close call, indicating the complexity of the current economic situation.
Inflation Outlook: The Bank acknowledges that there is still significant progress to be made in reducing inflation and is committed to taking necessary actions to bring inflation back to the target of 2%.
Policy Stance: The Bank indicates that monetary policy will need to be restrictive enough, and for a long enough period, to effectively combat inflation.
Uncertainty Over Inflation Trends: Most policymakers are of the view that it's too early to assert that services inflation or pay growth are consistently decreasing.
Potential for Further Tightening: The Bank suggests that additional tightening of monetary policy may be necessary if persistent inflationary pressures are observed.
Inflation Forecast: The Bank now forecasts inflation to be just under 4.5% by the end of the year, slightly lower than the previous forecast of 4.75%.
As Justin points out, the full statement from the Bank of England indicates no pivot in their approach, maintaining that more evidence is needed before concluding that inflation is decreasing. They remain open to the possibility of further rate hikes.
Following this announcement, the GBPUSD has moved even higher, moving from around 1.2660 to 1.2724. This increase is attributed to the Bank of England's comparatively hawkish stance, especially when contrasted with the Federal Reserve's recent actions. The price of the GBPUSD has now reached the high ceiling from end of November/early December between 1.2723 to 1.2732.
Earlier the SNB kept rates unchanged at 1.75%. Highlights from that decision and statements from SNBs Jordan:
Interest Rate: SNB kept rates unchanged at 1.75% as expected
Monetary Policy Adjustment: The SNB is prepared to adjust its monetary policy as needed to ensure that inflation remains within a range that is consistent with price stability over the medium term.
Foreign Exchange Market Activity: The SNB expresses its willingness to be active in the foreign exchange market as necessary.
Inflation Forecasts: The SNB has revised its inflation forecasts, now seeing:
- 2023 inflation at 2.1% (previously 2.2%)
- 2024 inflation at 1.9% (previously 2.2%)
- 2025 inflation at 1.6% (previously 1.9%)
Focus Shift from Forex Sales: SNB Chairman Thomas Jordan stated that the SNB is no longer focusing on forex sales.
Inflation Outlook and Policy Adjustments:
- Inflation pressures have slightly decreased, but uncertainty remains high.
- Swiss inflation is likely to rise in the coming months.
- The SNB sees the risks for inflation as balanced, both on the upside and downside.
- The SNB will adjust its monetary policy as necessary to maintain price stability.
Current Monetary Conditions: Chairman Thomas Jordan believes that the current monetary conditions are appropriate at the moment.
No Forecast for Tightening: The SNB, as of now, does not foresee any tightening given the current forecasts.
- The SNB will closely monitor inflation and adapt its policy to contain inflation within the target for price stability. Chairman Jordan explicitly noted that, all else being equal, they are not looking at any more rate hikes currently.
In summary, the SNB is maintaining a cautious approach, willing to adjust policies as necessary, but currently sees no immediate need for further rate hikes, given the slightly decreased inflation pressures and their current forecasts.
The ECB decision is up next at 8:15 AM ET where they too are expected to keep rates unchanged. Will they follow the Fed or the BOE. The EURUSD is higher on the day as well as it continues it's post-FOMC run higher.
A snapshot of the markets to kickstart the North American session shows:
- Crude oil is trading up $1.28 or 1.86% at $70.76. At this time yesterday, the price was at $68.87
- Spot gold is trading up $10.52 or 0.52% at $2037.87. At this time yesterday, the price is at $1981.31
- Spot silver trading up $0.30 or 1.28% at $24.09. At this time yesterday, the price was at $22.69
- Bitcoin is trading at $43,181. At this time yesterday, the price was trading at $41,190
In the US stock market, the major indices futures imply a higher opening after closing higher across-the-board yesterday. All three indices closed yesterday at the highest levels for 2023 (once again). Shares are up for five consecutive days:
- Dow Industrial Average futures are implying a gain of 138.1 points. Yesterday, the Dow Industrial Average rose 512.30 points or 1.40% at 37090.25. The Dow Industrial Average closed yesterday at an all-time record high
- S&P index futures are implying a gain of 16.4 points. Yesterday, the S&P index rose 63.39 points or 1.37% at 4707.08
- NASDAQ index futures are implying 67.6 points. Yesterday, the Nasdaq Index rose 257 points or 1.38% at 14733.96
In the European equity markets, the major indices are trading higher following the US stock tire:
- German DAX, +0.61%
- France's CAC, +1.21%.
- UK's FTSE 100, +1.70%
- Spain's Ibex, 1.14%
- Italy's FTSE MIB, 0.32% (10 minute delay).
In the Asia Pacific market, major indices closed mixed
- Japan's Nikkei index, -0.73%
- China's Shanghai Composite Index, -0.32%
- Hong Kong's Hang Seng index, +1.07%
- Australia's S&P/ASX index, +1.65%
In the US debt market, yields are trading lower:
- US 2Y T-NOTE: 4.333% -14.7 basis points. At this time yesterday, the yield was at 4.717%
- US 5Y T-NOTE: 3.885% -11.8 basis points. At this time yesterday, the yield was at 4.205%
- US 10Y T-NOTE: 3.946% -8.6 basis points. At this time yesterday, the yield was at 4.182%
- US 30Y BOND: 4.1117-7.3 basis points. At this time yesterday, the yield was at 4.282%
- 2 – 10-year spread is trading at -39.5 basis points. At this time yesterday, the spread was at -49.3 basis points
- 2 – 30 year spread is trading at 23.1 basis points. At this time yesterday, the spread was at -40.9 basis points
In the European debt market, benchmark 10-year yields are trading sharply lower ahead of the ECB rate decision:
