Trading was very mixed over the course of the afternoon ahead of last night's Fed meeting, with the only notable move being weakness in GBP as markets priced in more rate cuts by the BoE next year, following the lower-than-expected GDP numbers for October.
USD sold off in the evening, with the Fed meeting considered dovish by markets. In the revised dot plot, the Fed indicated no more rate hikes and pencilled in 75 bps worth of rate cuts by the end of next year. Market pricing for rate cuts is for 157 bps - over double the Fed's forecast. The news has been regarded as the potential for a all in one monetary policy pivot by all central banks going into 2024.
Market rates
* Daily move - against G10 rates at 7:30am, 14.12.23
** Indicative rates - interbank rates at 7:30am, 14.12.23
Data points
Speeches
Our thoughts
USD has clawed back some of the losses from yesterday's Fed meeting, as markets price in additional rate cuts by the BoE and ECB even before today's events.
Big day today with the BoE and ECB rate decisions, as well as US retail sales. Governor Bailey will find it hard to back his recent hawkish comments, especially considering data this week as well as Fed Powell's comments yesterday. It is worth noting that inflation in the UK is a lot higher than the US, but nonetheless if the market senses any dovish tones in his commentary today then we could see markets ramp up rate cut bets from the 125 bps worth of cuts priced in at the moment – this would be GBP negative.
ECB Lagarde will also face a tough task to sound hawkish, especially following on from her fellow colleagues’ dovish comments in recent weeks. Current market pricing suggests 157 bps worth of cuts for next year.
Chart of the day
The revised dot plot showed a dovish turn by the Fed, with 75 bps worth of rate cuts for 2024 vs the previous plot showing approximately 30 bps worth of cuts. USD sold off as a result, and now over to the BoE and the ECB to see if Bailey and Lagarde take a dovish pivot also.
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