The following week is the last this year before the Christmas holidays start. It means that nearly three weeks’ worth of economic news may be expected in the following days. The Fed interest rate decision is expected on Wednesday, followed by the Bank of Japan and Bank of England with the same decision on Thursday. In Europe, ECB President Lagarde speaks on Monday and ZEW economic sentiment is published on Tuesday. The latest inflation data will be published in the Eurozone and England as well. In the US, retail sales, home sales, GDP growth rate, and PCE price index are expected to be reported next week. Key data are discussed in more detail below.
Table of Contents:
- UK Consumer Price Index (CPI) YoY (November)
- Eurozone Consumer Price Index (CPI) YoY (November)
- Fed Interest Rate Decision
- UK Interest Rate Decision
- US GDP growth rate (QoQ) Q3
Wednesday 18.12. 08:00 CET, UK Consumer Price Index (CPI) YoY (November)
The inflation rate in the UK rose to 2.3% in October 2024, marking the highest level in six months, up from 1.7% in September. This figure surpassed both the Bank of England's target and the market expectation of 2.2%.
The primary driver of this increase was housing and household services, which rose to 5.5% from 3.8% in the previous month. This was largely due to changes in electricity prices (falling to -6.3% from -19.5%) and gas prices (dropping to -7.3% from -22.8%), following the implementation of Ofgem's increased energy price cap in October 2024.
Additionally, prices for restaurants and hotels slightly increased (4.3% compared to 4.1%), and housing and utility costs rebounded (up to 2.9% from -1.7%). Service prices also saw a marginal lift to 5% from 4.9%, aligning with the central bank's projections. In contrast, food inflation remained unchanged at 1.9%, while the most significant offset to inflation came from recreation and culture, which decreased to 3% from 3.8%.
Overall, the Consumer Price Index (CPI) increased by 0.6% from the previous month, and the annual core inflation rate slightly rose to 3.3% from 3.2%.
Analysts expect the UK's inflation rate to remain at 2.3% from the previous month's reading.
Source: Tradingeconomics.com
A higher-than-expected reading may have a bearish effect on the GBP, while a lower-than-expected reading could be bullish for the GBP.
Impact: USD/GBP, EUR/GBP
Wednesday 18.12. 11:00 CET, Eurozone Consumer Price Index (CPI) YoY (November)
According to the preliminary estimates, the annual inflation rate in the Eurozone rose for the second consecutive month to 2.3% in November, up from 2% in the previous month, aligning with market predictions. This year-end increase was anticipated, mainly due to base effects, as the significant drops in energy prices of the prior year are no longer influencing annual rates. Energy prices saw a decline of 1.9%, which was less severe than the 4.6% decrease recorded in October. Additionally, costs for non-energy industrial goods increased by 0.7%, higher than the 0.5% increase noted in October.
Conversely, inflation for services slowed to 3.9% from 4%, and the increase for food, alcohol, and tobacco moderated to 2.8% from 2.9%. Meanwhile, core inflation, which excludes the more volatile categories of food, energy, alcohol, and tobacco, held steady at 2.7%, contrary to expectations for a rise to 2.8%. Month-over-month, the Consumer Price Index (CPI) decreased by 0.3%, following a 0.3% increase in October.
Analysts' expectations align with the initial estimates of the 2.3% inflation rate in the Eurozone in November.
Source: Tradingeconomics.com
A higher-than-expected reading may have a bearish effect on the EUR, while a lower-than-expected reading could be bullish for the EUR.
Impact: EUR/USD, EUR/GBP, EUR/PLN
Wednesday 18.12. 20:00 CET, Fed Interest Rate Decision
Minutes from the Federal Reserve's November 6-7 meeting reflected optimism that inflation is easing while the labour market remains strong, suggesting the potential for additional interest rate cuts at a cautious pace. Officials emphasized that monetary policy decisions depend on evolving economic conditions and warned against premature reductions. They highlighted challenges in policymaking due to recent data volatility and uncertainty about the neutral interest rate's influence on the economy. Some participants favoured maintaining restrictive rates if inflation persisted, while others supported faster cuts if labour market conditions weakened. The meeting did not address the economic implications of Donald Trump’s recent presidential election win but stressed the importance of flexibility in policy decisions.
Analysts expect the Fed funds interest rate to be lowered by 25 basis points to 4.50% in the upcoming meeting.
Source: Tradingeconomics.com
A decision on a higher-than-expected interest rate may have a bullish effect on the USD, while a decision on a lower-than-expected interest rate could be bearish for the USD.
Impact: EUR/USD, USD/GBP, USD/PLN
Thursday 19.12. 13:00 CET, UK Interest Rate Decision
As anticipated, the Bank of England reduced its Bank Rate by 25 basis points to 4.75% during its November 2024 meeting. This marks the second rate cut in four years, following the initiation of the easing cycle in August. Eight of the nine Monetary Policy Committee (MPC) members supported the decision, exceeding expectations of seven votes, while Catherine Mann voted to maintain the rate. The decision was driven by evidence of slowing price growth in the UK, with September’s inflation falling to a three-year low of 1.7%. Additionally, services inflation—a measure of underlying price pressures, which tends to be more persistent—dropped to a two-year low of 4.9%, though it remained relatively high. While the Bank projects underlying inflation to continue moderating in the medium term, it estimates that the Labour Party’s expansionary budget may temporarily increase inflation by up to 0.5 percentage points at its peak. The Bank now forecasts inflation to reach 2.5% by the end of the year and 2.2% by 2026. The budget is also expected to boost GDP by 0.75% at its peak impact within one year.
Analysts expect the UK interest rate to remain at 4.75% in the upcoming meeting.
Source: Tradingeconomics.com
A decision on a higher-than-expected interest rate may have a bullish effect on the GBP, while a decision on a lower-than-expected interest rate could be bearish for the GBP.
Impact: EUR/GBP, USD/GBP, GBP/PLN
Thursday 19.12. 14:30 CET, US GDP Growth rate (QoQ) Q3
Current estimates suggest that the US economy grew at an annualised rate of 2.8% in Q3 2024, unchanged from the initial estimate and slightly below the 3% growth recorded in Q2. Personal spending rose fastest since Q1 2023 but was revised slightly down from the preliminary estimate (3.5% vs. 3.7%). This increase was driven by a 5.6% jump in goods consumption (revised from 6%) and strong service spending, which remained steady at 2.6%. Government consumption growth was confirmed at 5%.
Net trade contributed slightly less to growth than initially reported (-0.57 percentage points vs. -0.56 percentage points), with both exports (7.5% vs. 8.9%) and imports (10.2% vs. 11.2%) revised downward. Meanwhile, private inventories subtracted 0.11 percentage points from GDP growth, an improvement from the previously estimated 0.17 percentage point drag. Fixed investment performed better than expected, rising 1.7% instead of 1.3%. Equipment investment saw significant gains (10.6% vs. 11.1%), while declines were noted in structures (-4.7% vs. -4%) and residential investment (-5% vs. -5.1%).
Analysts' expectations align with previous estimates of the US’s 2.8% GDP growth rate in Q3 2024.
Source: Tradingeconomics.com
A higher-than-expected reading may have a bullish effect on the USD, while a lower-than-expected reading could be bearish for the USD.
Impact: EUR/USD, USD/GBP, USD/PLN
Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service)
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