The second week of December is filled with important events on both sides of the Atlantic. Important macroeconomic data will be published, as are the recent decisions of key central banks this year. There will be also parliamentary elections in the United Kingdom that may determine the fate of Brexit.
The British pound has gained around 10% in relation to the US dollar since September. This gives the impression that investors and the market are already fully discounting the victory of the Conservative Party. Polls still indicate that the party of the current Prime Minister Boris Johnson will manage to win the majority. If voters decide so on December 12, Johnson should push his Brexit agreement in the new parliament. Investors in the options market assume increased volatility this week, and especially on Thursday, on election day. Despite the increase in the GBP/USD exchange rate, the options market is convinced that it is worth insuring against an unfavorable scenario for the pound and, as a result, there was more demand for put options than for call options.
Also on Thursday at 13:45, the European Central Bank's decision on interest rates will be published. This will be the first meeting headed by Christine Lagarde. She replaced Mario Draghi, whose term has ended. While no changes in the ECB's monetary policy are expected, the first Lagarde press conference promises to be interesting (at 14:30). Market participants hope that they will get to know the opinion of the new head of the ECB on the economic situation of the euro area and possible future activities of the ECB.
The day before, the US Federal Reserve will announce its decision on interest rates. According to the market, the range for the federal funds rate will not change and will continue to be at 1.5-1.75 percent. The interest rate market is 99 percent sure of this. However, in September next year that the probability of further interest rate cuts rising above 50 percent. Hence, investors' attention may shift to macroeconomic projections, which will be published together with the decision at 20:00, and then to the press conference at 20:30.
There are many indications that this week can be very interesting, and certainly, there will be events from the world of politics and monetary policy that are worth paying attention to, as they could affect the behavior of the euro, US dollar or British pound.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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