Forex Signals Brief December 15: Services and Manufacturing Closing A Loaded Week

After the FED turned dovish and Chair Powell confirmed rate cut anticipations on Wednesday evening, sending the USD substantially lower, yesterday we had three more major central banks holding meetings. The Swiss National Bank, the Bank of England, the European Central Bank, as well as the Central Bank of Mexico all commented on their recent rate decisions. They all kept the interest rates on hold, however, it is clear to assume that the decisions were leaning more toward the hawkish side, which further supported the GBP, EUR, and CHF.

The BOE MPC rate vote resulted in a 6-3 decision against expectations of 7-2, with Greene, Haskel, and Mann voting in favor of a 25 bps increase. The Bank recognizes that there is still significant progress to be made in lowering inflation and is committed to taking the necessary steps to return inflation to the 2% target, with the monetary policy being restrictive enough and for a long enough period to combat inflation.

The ECB also maintained interest rates at 4.50%, 4.75%, and 4.00%, with inflation expected to rise temporarily before steadily declining to the 2% target by 2025. Economic growth is subdued in the immediate term, but the ECB intends to keep rates at levels, making choices based on economic data and inflation dynamics. They said to continue reinvesting PEPP funds until mid-2024, then reduce the portfolio by €7.5 billion per month in the second half of 2024, with reinvestments terminating at the end of the year. This kept the Euro bullish and sent EUR/USD above 1.10.

Today’s Market Expectations

Today is the day we get the services and manufacturing PMI reports for the month from Europe and the US. However the day starts with the Chinese Industrial Production which is forecast to increase to 5.6% Y0Y, whilst Retail Sales are expected at 12.5% Y0Y from 7.6% previously, which is a positive thing for commodity dollars/.

The Flash Eurozone manufacturing and services PMI numbers are also expected to show an improvement this month, after the final PMIs for November witnessed some positive revisions. Although both sectors remained in the contraction zone. As a result, analysts predict that the bloc will conclude the year in a technical recession, but it is projected to be mild.

The UK PMI numbers for December should be positive, following the positive revisions of the composite PMI in November, bringing it more convincingly into the expansionary zone at 50.7, which the S&P interpreted as evidence of a slight resurgence in corporate activity after three months of decline.  The US PMI numbers will close the week little changed, with services slightly in expansion and manufacturing slightly in contraction.