Published: 14/12/2022 By ECAP
UK inflation fell by more than expected in November, easing the pressure on the Bank of England to keep raising interest rates against the backdrop of a recession. The consumer price index rose by 0.4% on the month, down from an alarming 2.0% in October that was caused by the adjustment of regulated household energy prices. That brought the year-on-year rate down to 10.7% from 11.1%. The figures come a day before the Bank of England is set to announce its latest policy decisions. The Monetary Policy Committee is expected to split at least three ways on what action to take, with several members shying away from further big increases in interest rates at a time when inflation appears to have already peaked.The Euro rallied to a six-month high against the US dollar yesterday, as most G10 currencies received a boost from softer-than-expected U.S. inflation data that raised hopes of the Fed shifting to smaller rate hikes. The cooling of price rises sets the scene for a step down in the pace of hikes by the Federal Reserve. Back in Europe, the region’s main central banks, including the European Central Bank and the Bank of England, are scheduled to release their latest rate decisions tomorrow, with rate hikes of 50-basis points expected from both. Ultimately, as inflation remains stickier in the Eurozone than in the US and UK, analysts are weighing up the potential for a surprise jumbo hike in tomorrow’s interest rate decision from the ECB.
The dollar nosedived across the board yesterday after data showed U.S. consumer price inflation rose less than expected last month. This reinforced expectations that the Federal Reserve will slow the pace of rate increases after its latest two-day meeting. The dollar index, which measures the greenback versus six major currencies, made a low of 103.57 in the wake of the inflation data, and is down 9% since hitting a 20-year high in September. Moreover, the report supported widely held expectations for a smaller Fed rate hike of 50-basis points when the central bank announces its decision this afternoon. Fed funds futures have priced in a lower terminal rate, where the Fed stops hiking, of 4.8%, expected to hit in May. That was down from about 5.1% seen late last month and has prompted traders to bet on 25-basis point increases at each of the Fed's first two meetings of 2023.