BoE Interest Rate Expectations
U.K. interest rate expectations have sharply fallen since the MPC left rates and their asset purchase program on hold. Many market participants were expecting policy makers to officially bring an end to their QE efforts and the subsequent disappointment has weighed on the sterling. Tomorrow’s quarterly inflation report could alter the outlook for interest rates, if price growth is expected to continue. Governor King following the rate decision forecasted that consumer prices would fall back below their 2.0% target for a period. A change in inflation expectations will make it difficult for the central bank to remain on hold and could generate sterling support. To discuss this and trading ideas join the GBP/USD forum.
FOMC Interest Rate Expectations
The upcoming U.S. advance retail sales report is the most significant release in a light week for event risk. Economists are forecasting a 0.3% rise in demand for January which could raise interest rate expectations as strong consumer consumption will put upward pressure on prices. Rising inflation would be the one catalyst that could shorten the horizon for future tightening. Fed Funds futures continue to reflect the dimming outlook for a rate hike with a zero percent chance at the March meeting (therefore not worth showing), and only a 33.2% chance by August compared with 54.8% a month ago.
Risk
The Dow broke out from a short-term triangle today on the speculation that Greece would receive a bailout. European sovereign debt issues have weighed on global sentiment and the Blue chip index. Bullish momentum was short lived as it was slowed by trend line resistance which has created the potential for a wider triangle. Therefore, we could see a period of consolidation as the formation develops before a larger breakout, with the downside favored. However, upcoming advance U.S. retail sales could generate support for equities as consumer consumption is expected to improve which will raise hopes that companies can maintain profits beyond cost cutting. 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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