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British Pound, USD, NOK May Rise on FOMC, ECB and UK Election

British Pound, USD, NOK May Rise on FOMC, ECB and UK Election

2019-12-09 05:00:00
Dimitri Zabelin, Junior Currency Analyst
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FOMC, US Dollar, Crude Oil, Swedish Krona, Norwegian Krone, British Pound – TALKING POINTS

  • US Dollar may rise on FOMC outlook despite rising US-China trade tensions
  • SEK, NOK, GBP may rise on UK election if conservatives can secure majority
  • ECB rate decision could also magnify volatility and push SEK, NOK higher

Learn how to use political-risk analysis in your trading strategy!

The US Dollar, Swedish Krona and Norwegian Krone may rise rise on the FOMC and ECB rate decisions as well as the UK election. The Greenback may gain if Fed Chairman Jerome Powell cools 2020 rate cut bets and serenades markets with messages of political and economic stabilization. GBP, SEK, and NOK may gain if Prime Minister Boris Johnson’s election reduces the probability of a no deal-Brexit and boosts market mood.

British Pound, Norwegian Krone, Swedish Krona are in a for Volatile Week

Chart showing G10 FX Volatility

FOMC Outlook

The US Dollar may rise if the FOMC re-affirms its data-dependent approach on the basis of the prevailing economic conditions not requiring additional easing measures. Fed Chairman Jerome Powell will likely cite last week’s impressive employment report and praise the tight labor market. The central bank has re-iterated that it will not adjust policy unless downside risks become “materially” worse.

However, this is no way suggests that markets will be met with an overly-zealous Chairman with unbounded optimism. US-China trade relations remain pointedly tense as the UK election looms over the horizon. Mr. Powell may also allude to rising risks in the financial system, specifically as it relates to growing levels of corporate debt amid the explosion of leveraged loans.

Get my US Dollar weekly forecast here!

ECB Rate Decision: What Will Lagarde Have to Say?

Markets are overwhelmingly expecting for the European Central bank to hold lending rates at -0.5 percent, though the event will also be closely watched for another reason. The newly-appointed ECB President Christine Lagarde will be giving her first press briefing in her new role and traders will be anxious to see her outlook on policy.

Ms. Lagarde has indicated that the central bank has not “hit the lower bound on interest rates”, suggesting there is still scope to cut further into negative territory. If the ECB President sends a chilling message about the Eurozone’s growth prospects and the need for additional liquidity provisions, it could hurt the sentiment-linked NOK and SEK. Conversely, a more optimistic note could push Nordic currencies higher.

UK Election: How Will it Impact US Dollar, Swedish Krona, Norwegian Krone?

As previously mentioned, the British Pound may rise on the UK election if Prime Minister Boris Johnson is able to secure a majority and reduce the probability of a fractured parliament and no-deal Brexit. Over the past week, GBP has surged as election polls revealed the Conservative lead over Labour ahead of the election on December 12. If Mr. Johnson wins, it could lift market spirit and boost GBP, SEK and NOK.

NOK May Rise on GDP, CPI Data

The petroleum-linked Norwegian Krone may rise after local GDP and CPI data is published. Economists are expecting for the economy to have grown 0.2 percent on a month-on-month basis following a 0.1 percent contraction in the prior period. Year-on-year inflation is anticipated to show a 1.6 percent print for November, slightly below the previous 1.8 percent figure.

Chart showing Norway CPI

The Norges Bank has been one of the very few central banks in the world who have been able to not only avoid cutting rates like much of their OECD counterparts, but has in fact raised them three times. The deposit rate currently stands at 1.50 percent. Implied policy rates across shifted upward since the last policy meeting in September, suggesting market expectations for Norges Bank policy has become more hawkish.

Sweden Inflation: Will it Further Pushback Timeline of Riksbank Rate Hike?

The Swedish Krona will likely experience higher-than-usual volatility against the backdrop of various external market stimuli and a cascade of critical local CPI data. CPIF – the Riksbank’s preferred measure of price growth – is expected to show a 1.6 percent print for November on a year-on-year basis. CPIF excluding energy as well as normal CPI are both expected to show a 1.7 percent figure for the same month.

Chart showing Sweden CPIF

A softer reading could inspire a selloff in the Swedish Krona if traders believe it will force the Riksbank to delay its rate hike from December to January. Year-to-date, it the worst-performing G10 major with -6.67 percent returns against the US Dollar. However, if price growth is stronger-than-expected, the Krona may rise, though given the country’s growing financial risks, upside momentum may be curbed if a crisis breaks out.

NORDIC FX TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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