Oil prices and Fed meeting in the spotlight

Oil prices fell further yesterday and hit a new low before rebounding – though the trend to decline hasn’t ended yet. The fall in oil is adding a further element of instability to December’s US Federal Reserve meeting, which happens tomorrow night.

Today we have the final pieces of data ahead of the meeting, with US inflation data taking priority. Core inflation is expected to rise by 0.2% taking the annual number to 2%. In addition we have the Empire Manufacturing Survey and the National Association of Home Builders housing survey to look forward to.

On Wednesday night it’s likely that the Fed will follow through and lift interest rates – at the same time, however, they are likely to underline a gradual raising cycle and therefore it is likely to be a “dovish” rise. The markets have factored in a rate increase to a large extent already, so if the Fed does deliver a “dovish” rise we may not see US dollar momentum muted.

Uptick in inflation could support the pound

Elsewhere today we have UK inflation data for November, where we’re expecting a slight increase of 0.1% from -0.1% in October and for core inflation to show a year-on-year increase from 1.1% to 1.3%.

An uptick in inflation could support the pound, which has come under pressure recently as risk aversion in the global markets has increased. The German ZEW survey has also been released and beaten expectations for December, which has given further short-term support to the euro.

Swedish central bank announcement today

The Swedish central bank, the Riksbank, will also be commanding some attention today. Given the further easing measures announced by the European Central Bank, a rate cut from the Riksbank (which would weaken the Swedish krona) cannot be ruled out. However, that the ECB was less aggressive than expected will have given the Riksbank some breathing space.