Markets Focus On US Elections Results, Fed And BoE Interest Rate Decisions
As Donald Trump is on the verge of winning the US presidential elections, the US dollar hit a 4-year high on Wednesday morning while Bitcoin rose by 6%. On the contrary, the euro, the British pound and the Mexican peso recorded losses as Trump’s plans may affect US close trading partners.
Economists are also focused on the US Federal Reserve (Fed) and the Bank of England’s (BoE) interest rate decisions.
US Federal Reserve Interest Rate Decision
The Fed’s Federal Open Market Committee (FOMC) is expected to announce its interest rate decision on Thursday evening. The CME FedWatch tool assigns 97.5% probability to a 25 basis points rate cut. Despite the strong data reports coming from the US economy, market analysts still see 3 rate cuts until early 2025.
Rabobank’s economists suggest that the US central bank would likely proceed with three interest rate reductions of 25 basis points (bps) each in November, December and January. In their note to investors just before the US elections, they wrote: “Beyond January, our Fed forecasts are dependent on the outcome of the presidential election. If Trump becomes president, which is still our baseline scenario, we will likely see a rebound in inflation once he imposes a universal tariff. For the Fed, this will mean that they will have to pause the cutting cycle.”
ING’s analysts also see a 25 bps cut tomorrow as the Fed will likely reach a total of 100 bps easing in 2024. The Dutch bank’s economists wrote in their report: “With regards to the Fed, we agree with the market and expect a 25bp rate cut on Thursday irrespective of the election outcome. The Fed is more relaxed about inflation and is putting more focus on the jobs market as it attempts to secure a soft landing for the economy. Even after September’s 50bp rate cut, monetary policy is in restrictive territory, and the Fed has scope to keep cutting rates back to a more neutral level to give the economy a little more breathing space to continue growing strongly.”
Bank of England Interest Rate Decision
On the same day, the BoE’s Monetary Policy Committee (MPC) will also convene to decide on monetary policy and interest rates. According to economists’ forecasts, the BoE will likely cut its borrowing costs by 25 basis points. It should be noted that the decision comes in the aftermath of the new government’s Autumn Budget announcement that involved significant tax raises.
Market analysts at ING noted in a report published on November 5th: “The budget won’t change the Bank’s decision to cut rates again this week. But it does question our long-held view that rate cuts will speed up from now on. The risk is that this happens later, and the Bank decides to keep rates on hold again in December. A cut at the final meeting of the year looks fairly 50:50, and a lot will depend on the two inflation reports we get between now and Christmas. Either way, we still see rates falling below 3.5% by next summer, which is well below what markets are now pricing.”
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