Will the Fed slow interest hikes?
By Arnaud Masset
The US Federal Reserve Bank might slow its interest-rate hikes, as the dollar continues to soften. Investors punished the USD yesterday, as they worried about Sino-American trade conflict. EUR/USD jumped 0.75% to 1.17, its highest since 27 August, and continued to grind higher on Friday morning. The dollar index fell to 94.40, down more than 1% on the week. As the European Central Bank is about to start phasing out easy money, this will only push EUR/USD to the upside.
Key economic data from the US came out yesterday, and more is coming today. August inflation came in below expectations. Core inflation (excluding food and energy) printed at 2.2% annually versus 2.4% expected. Today will see reports on retail sales and industrial production.
Turkey’s central bank flexes muscles
By Vincent-Frédéric Mivelaz
The Central Bank of Turkey raised interest rates 6.25% to 24% - well above the expected 21%. And it worked! The Turkish lira strengthened, moving back below 6.25 per USD – for one day at least. Short-term we expect a rebound toward 6.25. Meanwhile, the Bank of England and the European Central Bank kept interest steady at 0.75% and -0.40% respectively.
BoE Governor Mark Carney confirmed his readiness to support sterling at all costs, with rate hikes in case of a ‘hard’ Brexit. Could the UK economy support higher rates? A recent survey says 40% of UK companies expect a sharp drop in exports after Brexit. Higher rates will only hurt, so we are not bullish on the pound. The ECB confirmed it will finally taper its bond buying in October. The Eurozone’s economic outlook has dimmed slightly, while risks of protectionism and emerging market crisis is growing. Euro interest rates are not expected to rise until next summer.