The Fed did a quick u-turn from December’s dot plot with Powell open to lower rates should the data dictate a lower terminal rate was needed. The Fed saw disinflationary trends well underway and this immediately lifted precious metals, and stocks, and sent the USD to new yearly lows. The BoE followed the dovish trend and indicated that it is very close to the terminal rate now depending on the path of inflation. This move may help support the UK economy medium term. The ECB took an as-expected rate decision and the focus will now rest on the incoming Eurozone data for the ECB’s next move.
Other key events from the past week
- USD: US interest rate decisions, Feb 1: The Fed was expected to hike by 25bps this week which it did, but could this be the last hike? The focus now is on the slower pace of rates ahead that Powell was potentially considering.
- GBP: BoE, Feb 2: The BoE was expected to hike by 50 bps and it did. However, this may be the last interest rate hike from the BoE as Governor Bailey said the bank is turning a corner. The question now is if this slower approach from the BoE ends up supporting the GBP medium term.
- EUR: ECB, Feb 2: The ECB was expected to hike by 50bps too on Thursday and it did by raising rates to 2.50%. The ECB signaled another 50bps hike for March and the focus will now be on the path of the Eurozone economy moving forward.
Key events for the coming week
- AUD: Interest rate decision, Feb 7: Will the last high inflation print put pressure on the RBA to take a more hawkish decision next week? The last print was 7.8% y/y vs 7.3% expected. STIR markets see an 86% chance of a 15bps hike.
- Walmart way: Is it time to walk the Walmart way?
- CNY: Chinese Inflation data, Feb 10: The IMF revised global growth forecasts higher last week citing China’s re-opening as a major driver for growth. However, will China’s re-opening end up being inflationary? Inflation is expected to rise to 2% for January y/y vs December’s prior reading of 1.8% y/y.
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