On Wednesday, we listened to Janet Yellen’s final statement as the Fed chair. To many, it was an emotional farewell for a chair who has performed extremely well. Under her tenure, she has brought the unemployment rate to 4.1% – the lowest point in 17 years – and tamed inflation which remains below 2%.
She has also guided the Fed in ending the QE and normalizing interest rates. In normalizing, the Fed is receiving the interest payments – about $10 billion a month – from the investments made during the QE and not re-investing them.
Across the pond, today, we will listen to Mark Carney’s statement. Without a doubt, Mark, like any other Central Bank governor will like to have Janet’s achievements when he exits in 2019. So far, while the unemployment rate is at a significant low, Mark has not done as much. Today, the interest rate is at almost the same level where he found it and the bank’s QE of £435 billion is £60 billion higher.
When he took office, many expected Mark to start raising rates faster than the Fed. Clearly, that has not happened. Understandably, Mark has had to deal with Brexit and its implications.
In the last meeting, the MPC made its first hike in a decade. Today, at 12 PM (GMT), the BoE is expected to release its interest rates decision. Analysts expect the rate to be left at 0.5%.
The headline number – unless it surprises the market – will not be a major market mover. Instead, traders will focus on the minutes from their meeting and the statement they will make thereafter.
Traders will want to hear the bank’s view of the surprising inflation data that was released yesterday. The inflation surged to 3.1% fueled by a surge in air fares and computer games. As a result of this surge, Carney is required by law to send a letter to Chancellor, Philip Hammond explaining the situation. This letter will accompany the BoE’s policy decision in February.
A survey by Bloomberg Economics found that most economists expect the rates to remain steady at 0.5% in 2018 with another hike expected in 2019. Two of the newest MPC members – Dave Ramsden and Silvana Tenreyro – have opposed any rate increases in the near-term.
In the last meeting, some members of the committee were optimistic by the economic growth and inflation progress. This has now been put to question by the surge in inflation and the sluggish growth in wages. Some estimates expect the wages to ease in the coming year and unemployment rate to increase as firms struggle with the Brexit concerns.
In the statement today, traders will want to get the opinion of the bank’s QE program. In the last meeting, Carny pointed out that an end is not in sight for the purchases. He forecasted that the asset purchases could continue to 2020.
For traders, the main currency pairs to watch out today are GBP/USD, EUR/USD, and GBP/USD. Other currencies that could see the most moves are Canadian dollar – during Governor Povof address – and Swiss Franc, after the interest rate decision from the SNB.