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Fed raises interest rates, but US dollar declines

business-articlesFed raises interest rates, but US dollar declines
  • BoE to outline plans for 2018
  • ECB to maintain dovish outlook?
  • US dollar lower after Fed rate hike
BoE hawks to push for rate hike in 2018?

The pound is relatively subdued this morning as investors await the Bank of England’s (BoE) December rate decision.

This will be the BoE’s first policy meeting since voting to raise interest rates to 0.5% in November, with the bank expected to reflect on the impact of the hike rather than make any further alterations to monetary policy this month.

GBP movement will therefore be dictated by the tone of the BoE’s policy outlook for 2018.

The BoE may make reference to November’s CPI figures, which showed that inflation climbed to a new five-year high, suggesting that more many need to be done to keep inflation under control.

Investors will also be eager to see whether the finalisation of the UK’s exit agreement with the EU will have any bearing on next year’s monetary policy, given the BoE’s frequent warnings that a lack of progress was hurting economic growth.

However, should the bank continue to signal that rates are likely to remain on hold next year then Sterling sentiment is likely to nosedive.

ECB expected to remain dovish on prospects of monetary tightening next year

In what is lining up to be a bumper day for central bank announcements, the European Central Bank (ECB), will also hold its latest monetary policy meeting later this afternoon. 

In its previous meeting, the ECB announced that it would be reducing the pace of bond purchases in 2018, but extending its quantitative easing programme until at least September, with the option to extend it even further if the bank felt necessary.

Given the stellar growth seen in the Eurozone in 2017, pressure is likely to mount for the ECB to normalise monetary policy and wind up its stimulus programme.

However, inflation has remained persistently low across the bloc and the ECB is likely to seize this as evidence that its accommodative monetary policy is still needed.

US dollar dips as Fed rate outlook remains unchanged

Following the conclusion of its two-day meeting yesterday, the Federal Reserve voted to raise US interest rates a quarter point from 1.25% to 1.5%, in a move that had been widely predicted ahead of time.

However, while acknowledging that the US economy had picked up steam in 2017, the Fed’s monetary policy outlook for 2018 remained unchanged, with the US central bank forecasting another three rate hikes over the coming year.

The real blow to USD, however, was that the bank seemed a little less optimistic than Trump on the potential impact of his tax cut plans, with policymakers expecting the changes to only provide ‘some modest lift’ to US growth.  

Upcoming Data

Thursday, 14th December 2017

12:00               GBP Bank of England rate decision 
12:45               European Central Bank rate decision
13:30               USD advance retail sales 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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