Forex Signals Brief December 20: UK CPI and CB Consumer Confidence

Last week, the focus was primarily on the Fed, as markets expected them to hint at a rate reduction. They did indeed turn dovish, and Chair Jerome Powell announced that the rate decrease would take place on Wednesday evening, pushing the USD down. However, at the end of the week, we saw a turnaround in the USD following some excellent retail sales figures for November, indicating that the US consumer is in good form.

The focus switched to the Swiss National Bank, the Bank of England, and the European Central Bank on Thursday.They all held interest rates on hold, but it’s safe to believe that the choices were leaning more toward the hawkish side because they didn’t reference rate reduction like the FED did the day before, which boosted the GBP, EUR, and CHF.

The BOE retained interest rates at 5.25%, with the MPC rate vote yielding a 6-3 decision against predictions of a 7-2 decision, which the market saw as hawkish, despite the fact that the UK economy is in horrible health, thus the GBP has nothing to run on other than USD weakness. The ECB kept rates at 4.50%, 4.75%, and 4.00%, while the SNB kept them at 1.75%.

Today’s Market Expectations

The day starts with the UK inflation report, which headline CPI projected to slow to 4.3% on an annualized basis vs. 4.6% in October, while the November monthly CPI number is expected to increase by 0.2% vs. 0.0% before. In sharp contrast to the surprisingly dovish FOMC decision, the Bank of England held interest rates steady and maintained its neutral position last week, which has been supporting the GBP. The Core inflation YoY is projected to slow to 5.5% from 5.7% in October, while the core MoM reading is expected to tick down to 0.2%, down from 0.3% before.

The Conference Board consumer confidence in the United States has been progressively declining in recent months as the labor situation has begun to deteriorate, however, in November this indicator improved and it is expected to improve again in December. In fact, unlike the University of Michigan Consumer Sentiment, which focuses on how consumers see their personal finances, CB Consumer Confidence focuses on how consumers perceive the labor market. The indicator is expected to rise to 104.3 points in December, up from 102.0 points in November.