All eyes on the FED

At last the 16th December is upon us, and one of the most eagerly awaited announcements for a long time will be made tonight at 7pm by the Federal Reserve. Markets have been pricing in around an 80% chance of the first rate hike in the US since 2006 and more importantly the first since the global recession. Janet Yellen and the FOMC are widely expected to increase the base rate between 0.1 and 0.25 basis points, and the size could be crucial to currency markets movements. Such is the anticipation of this release, much of the potential outcome has already been priced into the market with substantial risk of an aggressive snap back if rates are not changed at all, much like with the ECB last month.

Yesterday afternoon the dollar rallied strongly against the other majors, after inflation figures were confirmed to have increased from 0.2% YoY in October, to 0.5% YoY in November. Rising inflation only adds to the likelihood of a rate hike and so the markets were quick to speculate on this and buy the US Dollar, making it increasingly more expensive to buy. The UK also posted some good inflation data yesterday, with November’s growth flat at 0% rather than the forecast 0.1% contraction. The pound however did not receive any support from these figures and continued to slip against most currencies as our currency continues to be out of favour. GBP/EUR rates have remained stagnant this last week, and buyers will be hoping for a large rate hike in the US for any hope of a recovery before Xmas as this should lend to a weaker Euro in the short term.

Before we get to this evenings big announcement, we have a number of other releases to focus on in what is set to be a very volatile day. Euro-zone PMI figures are due at 9am, with UK unemployment following shortly at 9:30am. Euro-zone inflation figures are at 10am and US Industrial production and manufacturing PMI are after lunch before the rate decision at 7pm. If you have a Euro or US Dollar requirement in particular, and are trying to make heads or tails of how today could impact the cost of your transfer, call your account manager today to discuss further on 0800 043 2623.