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UK inflation and the Federal Reserve interest rate decision


15 December 2022

EUR/GBP is holding steady at 0.86 ahead of UK inflation data. Inflation is expected to slow slightly in November but remain firmly in double digits without any real signs that peak inflation has passed. The data comes after UK wage growth accelerated in October to 6.1% YoY, up from 5.8%. Together, high inflation and rising wage growth could keep the pressure on the BoE to continue hiking interest rates aggressively to rein in inflation, even if the economy is heading for a recession. The euro is finding strength from stronger-than-expected German economic sentiment.

The ZEW economic morale index improved for a third straight month and hopes that inflation is cooling and energy markets have stabilized. Both the BoE and the ECB will announce interest rate decisions tomorrow.

Where might the EUR/GBP price head to?

EUR/GBP continues to trade relatively range-bound, capped on the upside by 0.8645, the December high, and the 200 sma at 0.8550 on the lower side. The RSI is below 50, suggesting that sellers would have more momentum. Sellers will look for a move below 0.8550 to extend the downside towards 0.85, the August 22 high, ahead of 0.84, the round number and a level that has offered support at several points across the year. Meanwhile, buyers could look to rise above 0.08660 resistance to expose the 50 sma at 0.8670. A break above here could bring 0.87, the multi-month rising trendline resistance, back into target.

BTC/USD rises to a monthly high

BTC/USD has risen to a monthly high of 17.8k, boosted by the broad risk-on mood in the market after the US inflation data and ahead of the FOMC rate decision. The prospect of a more dovish Federal Reserve is offsetting any lingering worries amid the fallout from the FTX case as ex-CEO Sam Bankman-Fried is formally charged with fraud in US courts and denied bail. Binance saw a large increase in withdrawals following reports that US prosecutors were also considering criminal charges against the exchange. Cryptocurrency-friendly bank Silvergate also saw its share price plunge.

Yet Bitcoin and its peers have managed to look past another turbulent 24 hours in the crypto industry thanks to the improving macro backdrop and hopes that the Fed will start slowing rate hikes.

Nasdaq rises ahead of the FOMC meeting

Nasdaq closed 1% higher and is rising again today after US inflation cooled by more than expected in November. CPI dropped to 7.1% YoY, falling from 7.7% in October and below forecasts of 7.3%. Core inflation was also cooler than expected at 6%, down from 6.3%. The data comes ahead of today’s FOMC rate decision and isn’t expected to alter the Fed’s plans to raise interest rates by 50 basis points after four straight meetings of 75 basis point hikes. However, the cooling inflation could influence rate hikes next year. Investors will watch guidance for the coming year closely. A more dovish sounding Feed could lift the Nasdaq higher.

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