BoE Interest Rate Expectations
Overnight Index Swaps are pricing in 60.7 bps of tightening over the next twelve months which is significantly lower than the 97.6 at the beginning of the year. Thursday’s rate decision could change that if the central bank officially brings an end to its QE efforts which would be the first step toward tightening. However, if policy makers only pause their efforts and continue to express concerns over credit conditions, yield expectations could continue to decline. To discuss this and trading ideas join the GBP/USD forum.
FOMC Interest Rate Expectations
Fed funds futures are now pricing in a 38.9% chance of a rate hike by August following better than expected manufacturing data and in line pending home sales. The upcoming Non-farm payroll report has the greatest potential to alter yield expectations as the U.S. economy is expected to have added 10,000 jobs in January. Job growth will increase the chances that the FOMC would consider tightening and could see the horizon for a rate hike shorten.
Risk
Positive housing data and rising commodity prices -on broader optimism that the global recovery will continue- helped rally stocks for a consecutive day. A 1.0% rise in pending home sales in December following November’s 16.4% decline provided hope that the housing recovery will continue aided by the extension of the housing tax credit. However, the rally could find resistance as it is threatening to test the former rising support trend line, which could now serve as resistance. Failure to break above would signal that the recent bearish trend remains intact increasing downside risks. To discuss this and other fundamental data join the Economics Forum.
To discuss this report or be added to the email list contact John Rivera, Currency Analyst: jrivera@fxcm.com
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