Monetary policy is back in focus on Tuesday as the Federal Reserve coalesces in Washington for its final meeting of the year. Although the rate announcement will come on Wednesday, investors will be keeping tabs on all the latest developments involving the Fed.
Action begins at 09:30 GMT with a series of UK inflation indicators. The Office for National Statistics will report on the retail price index, producer price index and consumer price index. These measures are closely watched by the financial markets, and will have a direct impact on the British pound.
The Centre for European Economic and Social Research (ZEW) will report on German investor sentiment at 10:00 GMT. The main economic sentiment gauge is expected to fall to 17.4 from 18.7 the previous month.
ZEW will also present its euro-wide sentiment indicator at 10:00 GMT.
Shifting gears to North America, the US Department of Labor will report on the producer price index (PPI) for November at 13:30 GMT. The monthly indicator is expected to read 0.3%, which translates into a year-over-year gain of 2.9%.
The Federal Open Market Committee (FOMC) is widely expected to raise interest rates at the conclusion of its December meeting on Wednesday. That would mark the Fed’s third upward adjustment of the year, which is in line with previous forecasts.
Policymakers will also unveil their latest summary of economic projections covering GDP, unemployment and inflation. US GDP is growing faster than expected, a sign that the Trump reflation trade is benefiting the broader economy. Meanwhile, the employment picture has also brightened, with the Labor Department recently reporting the creation of 228,000 nonfarm jobs in November.
In other policy news, European Central Bank (ECB) Governor Mario Draghi will deliver a speech at 19:00 GMT, just days before his Governing Council votes on interest rates.
EUR/USD
The euro bounced back on Monday after a sharp selloff at the end of last week. However, it continues to trade well below 1.1800 US, which presents an imminent resistance area. The EUR/USD exchange rate was last seen trading at 1.1769, where it was little changed compared with the previous close. Monetary policy will loom large for this pair in the coming days.
GBP/USD
Pound sterling has lost its luster in recent days even as Theresa May struck a breakthrough deal with the European Union over Brexit. Cable (GBP/USD) was last seen trading at 1.3339, having declined more than 150 pips from Friday’s peak. British economic data could have considerable sway on Tuesday.
USD/JPY
The Japanese yen continued to backtrack against the dollar on Tuesday, with the USD/JPY hovering around 113.50. Money is pouring back into the greenback as expectations for an imminent rate hike continue to grow.
