On the heels of Donald Trump’s decisive victory in the US presidential election and the Federal Reserve’s interest rate decision, inflation data released on Wednesday could provide clues to investors on future direction of monetary policy.
Economists polled by Reuters expect the consumer price index to grow 2.6 percent year-on-year in October, slightly higher than the 2.4 percent recorded a month ago. The September figures mark a slowdown in the pace of inflation, but remain above consensus forecasts.
Excluding volatile items such as food and energy, core inflation is expected to remain stable at 3.3 percent last month.
Following a series of generally strong economic data, the Fed this week cut U.S. interest rates by a widely expected 0.25 percentage point to a target range of 4.5 to 4.75 percent, after having implemented a giant half-point cut in September.
While traders are betting that President-elect Trump’s campaign policies of tariffs and tax cuts will be inflationary, markets are now pricing in less than a percentage point of cuts by the end of the next year.
Neil Sun, BlueBay portfolio manager at RBC Global Asset Management, said his team expects another quarter-point rate cut in December, “while the outlook for 2025 remains uncertain as “Investors await clarification on the political impact of ‘Trump 2.0’.”
“We believe an inflationary trade war would limit the Fed’s ability to cut rates in 2025.” Harriet Clarfelt
Is UK GDP growth continuing to slow?
Britain’s economic growth is expected to have slowed significantly in the third quarter of the year, a blow to the new Labor government’s growth agenda but a likely help in the Bank of England’s fight against inflation.
Economists surveyed by LSEG forecast that GDP data released on Friday will show a quarterly growth rate of 0.2 percent for the three months ending in September. This figure is lower than 0.5 per cent in the previous quarter and 0.7 per cent in the first quarter, when the UK economy was recovering from last year’s technical recession.
“This is not an exceptional pace, at a time when household incomes will have benefited from wage growth above inflation,” said Sandra Horsfield, economist at Investec, who shares the consensus forecast.
However, by falling somewhat short of its potential, this pace of expansion allows some underlying price pressures to escape, making it more likely that inflation – currently below target – could be maintained at the targeted level in the medium term, she said.
“As such, it gives the (BoE) monetary policy committee more room to continue cutting rates, without suggesting there is any real urgency to do so,” Horsfield said.
The BoE cut interest rates for the second time this year, to 4.75 percent this week. He expects economic growth to return to 0.2 percent in the third quarter and 0.3 percent in the last three months of the year.
Governor Andrew Bailey said he expected rates to “continue to fall gradually from here on out”, with many economists expecting US President-elect Trump’s plans for tariffs to fuel the ‘inflation.
The BoE also estimated that the measures announced in last month’s budget will increase GDP by around 0.75 percent within a year, compared to its August projections. He also expects inflation to be about 0.5 percentage points higher than its peak late next year, at 2.7 percent. Valentine of Rome
Is the euro heading towards parity with the dollar?
The prospect of tariff and tax cuts under US President-elect Donald Trump has sent the euro lower, with some analysts even expecting the currency to fall to parity with the dollar.
ING expects the currency to trade between $1.00 and $1.05 over the next few quarters, with a “peak pressure” towards the end of next year when tight fiscal conditions come to an end. will associate with the Trump team’s search for trade concessions with Europe.
“We think parity will probably be achieved by the end of 2025,” said Chris Turner, global head of markets at the Dutch bank.
The euro saw the biggest decline of any G10 currency against the dollar following the US presidential election, falling 1.9 percent on Wednesday. As of Friday, it was trading at around $1.072.
Trump’s victory comes as investors expect the European Central Bank to cut interest rates much faster than the U.S. Federal Reserve. While strong economic data reduced bets on a U.S. rate cut, eurozone data was weaker.
Eurozone inflation rose to 2 percent in October, meeting the ECB’s target and helping to prompt swap markets to price in an 86 percent chance of a 0.25 percentage point rate cut. percentage next month, according to LSEG data.
Jussi Hiljanen, SEB’s chief strategist, said a “post-election honeymoon” would help boost the dollar.
“It is difficult to find substantial European factors that could weigh against (currency strength) in the short term,” he said, adding that the political context in Europe “remains bleak.” Rafe Uddin
