Central Banks, EU Summit in Focus; Dollar Softer on Fed

The dollar weakened overnight after the Fed raised interest rates by 25 basis points to 1.25%-1.50% as was widely expected and kept its projections for three hikes in 2018 unchanged. The lack of higher expectations for next year may have disappointed some investors. A softer CPI print had weighed on the dollar earlier in the session.

Previous Day's Market Highlights

The dollar weakened overnight after the Fed raised interest rates by 25 basis points to 1.25%-1.50% as was widely expected and kept its projections for three hikes in 2018 unchanged. The lack of higher expectations for next year may have disappointed some investors. A softer CPI print had weighed on the dollar earlier in the session.
 
EUR/USD regained 1.18 and GBP/USD 1.34 following the decision. Elsewhere, the pound was relatively steady against the euro. Mixed employment data had given the pound little support earlier in the day as wage growth increased but the Unemployment Rate also rose.
 
The Aussie strengthened overnight after employment data surprised to the upside, with Employment Change at 61.6K versus 18.0K forecast.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP / EUR 1.1364 1.1509 1.1133 3.27%
GBP / USD 1.3434 1.3550 1.3135 3.06%
EUR / USD 1.1817 1.1961 1.1713 2.07%
GBP/AUD 1.7530 1.7999 1.7313 3.81%
GBP / NZD 1.9188 1.9836 1.9080 3.81%
GBP / CAD 1.7238 1.7468 1.6786 3.90%

Today's Market Highlights

The calendar is busy today, paving the way for potential volatility. UK Retail Sales (09:30 GMT) are forecast to pick up, which could offer the pound support, but market attention will largely be on the upcoming policy meetings.  
 
The BoE is expected to keep interest rates on hold (12:00 GMT) after hiking in November and reversing the post-referendum cut to 0.25%. Key therefore will be the Bank’s updated guidance and projections for next year.
 
Similarly, the ECB is expected to keep policy on hold (12:45 GMT) and the euro will be driven by 2018’s guidance and projections, particularly for QE after September. Volatility is often seen during ECB President Draghi’s press conference (13:30 GMT).
 
Politics will also be in focus as the EU Summit begins today after last week’s divorce deal agreement and yesterday’s government defeat as MPs voted for parliament to have a vote on the final Brexit deal.
 
Other items to note include US Retail Sales and preliminary Markit PMIs (13:30, 14:45 GMT) and a speech from Bank of Canada Governor Poloz (17:25 GMT).

Today's Economic Calendar

Time Currency Release Consensus Previous
09:30 GBP Retail Sales YoY (Nov) 0.3% -0.3%
09:30 GBP Core Retail Sales YoY (Nov) 0.4% -0.3%
09:30 GBP Retail Sales MoM (Nov) 0.4% 0.3%
09:30 GBP Core Retail Sales MoM (Nov) 0.5% 0.1%
12:00 GBP BoE Interest Rate Decision 0.5% 0.5%
12:00 GBP MPC Votes 0-0-9 7-0-2
12:00 GBP Monetary Policy Statement & Minutes
12:45 EUR ECB Interest Rate Decision 0.0% 0.0%
12:45 EUR ECB Deposit Rate Decision -0.4% -0.4%
13:30 EUR ECB Press Conference
13:30 USD Retail Sales MoM (Nov) 0.3% 0.2%
13:30 USD Core Retail Sales MoM (Nov) 0.6% 0.1%
13:30 USD Initial Jobless Claims (8 Dec) 239K 236K
14:45 USD Prelim Markit Manufacturing PMI (Dec) 54.0 53.9
14:45 USD Prelim Markit Services PMI (Dec) 55.0 54.5
17:25 CAD BoC Governor Poloz Speaks