- Fed policymakers encouraged by recent data but won’t get complacent
- BoE interest rate expectations barely changed after UK Autumn Statement
- GBP/USD reverses near key resistance
The two big events of the last 24 hours haven’t really packed the punch they occasionally can which perhaps explains why we aren’t seeing big moves today.
Fed Determined to “Proceed Carefully”
The FOMC minutes were arguably slightly on the dovish side, with the committee now seemingly of the view that no further hikes will be needed, with the language instead focusing on the need to proceed carefully.
While we probably will still hear more of the higher for longer mantra from policymakers in public ahead of the December meeting, it’s clear now that the FOMC is pleased with the recent progress it’s seen and as long as it doesn’t go into reverse, rate hikes are a thing of the past.
The question now is how long before the rate-cutting conversations begin. Markets are pricing in the first reduction around June but I can’t imagine policymakers will acknowledge that possibility for some time. The late pivot still looks highly likely as the Fed seeks to avoid underestimating inflation again.
Markets Still Pricing in a Possible UK Rate Cut in June
The UK Autumn Statement wasn’t a big market-moving event today and perhaps in the current environment, that’s a good thing. Given the speculation in recent days around what measures Chancellor Jeremy Hunt would announce due to the additional fiscal headroom and proximity to the election, there have been some concerns that measures could run counter to the Bank of England’s goal of getting inflation back to 2%.
The fact that the pound was fairly steady during today’s event and markets are still pricing in a 50% chance of a rate cut by June suggests investors are not concerned about any inflationary implications on the back of today’s announcements.
GBP/USD Pulls Back Near Key Resistance
GBP/USD had rallied in recent weeks towards 1.26 which only recently had been a major technical level.
Source – OANDA on Trading View
Not only does it represent the 50% retracement of the move from the July highs to the October lows, but it coincides with the neckline from the head and shoulders it broke below in early September.
Yesterday it was looking a little short of momentum which could be a red flag near such a potentially important technical level. It’s now rotated lower which doesn’t necessarily mean it’s failed and heading lower, but it may suggest the market views it as an important level.