TALKING POINTS – EURO, GERMAN CPI, US DOLLAR, FOMC MINUTES, FED
Dovish shift in Fed price hike expectations possible an overreaction
FOMC minutes could revive tightening bets, boosting US Greenback
Euro prone to overlook slight downtick in German CPI inflation
German CPI information headlines the financial calendar in European buying and selling hours. The headline inflation price is anticipated to edge all the way down to 2.four % on-year in November, retreating from the last decade excessive of two.5 % set within the prior month.
The result could imply little for the Euro a technique or one other contemplating its restricted implications for near-term ECB financial coverage. The central appears to be on autopilot because it winds down QE by means of year-end and a subsequent price hike just isn’t anticipated no less than by means of October of subsequent yr.
US DOLLAR MAY RISE ON FOMC MEETING MINUTES
That appears prone to put November FOMC assembly minutes squarely within the highlight. The coverage assertion launched following that gathering of the rate-setting committee struck an upbeat tone. The same narrative within the at this time’s launch could immediate a rethink of the newest dovish shift in market expectations.
Fed Chair Jerome Powell stated the benchmark Fed Funds price is now “slightly below” the impartial vary, the place coverage is neither stimulative nor contractionary. Markets learn that to imply that the present tightening cycle is nearing an finish, slashing priced-in 2019 price hike bets and sinking the US Greenback.
This looks as if an overreaction. The Fed’s personal estimates – final revised in late September – put the impartial price in a spread of two.5-Three.5 %, with most policymakers’ bets clustered on the midline of this band at Three %. That’s about 75-100bps away from the present 2-2.25 % goal Fed Funds price vary.
The Fed has additionally projected 75-100 foundation factors in hikes between now and the tip of subsequent yr. In different phrases, Mr Powell’s remarks appear to endorse the established order coverage path unveiled two months. If the Minutes doc implies as a lot, the Buck is prone to stage a broad-based restoration.
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— Written by Ilya Spivak, Forex Strategist for DailyFX.com
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