The most important trading week of December has just started as traders prepare for the monetary policy decisions of four central banks. Market participants are eager to find out the decision on interest rates and the details that usually follow.
These are the four central banks to watch this week:
Federal Reserve of the United StatesSwiss National BankBank of EnglandEuropean Central Bank
Federal Reserve of the United States
For much of the second half of the trading year, market participants have expected a signal that the Fed will pivot. This week, on Wednesday, the Fed is expected to raise the funds rate by another 50bp.
While less than the three consecutive 75bp rate hikes delivered in the last meetings, the Fed’s December move is not quite the pivot that the market expected. Nevertheless, stocks are well off their lows, and the US dollar took a beat all over the FX dashboard.
Swiss National Bank
Another central bank to raise the rates by 50bp this week is the Swiss National Bank. Inflation in Switzerland is far less than in the euro area or the United States, so the central bank is set to slow down the pace of its interest rate hikes.
By delivering a 50bp rate hike, the interest rate in Switzerland will reach 1% – still way lower than the Fed’s 4.25%-4.5%.
Bank of England
The Bank of England is expected to raise the bank rate also by 50bp, pushing the rate to 3.5%. Inflation reached 11.1% in October, so the Bank of England cannot lower its guard.
At the same time, the UK labor market remains resilient, with the unemployment rate at a very low level of 3.6%.
European Central Bank
Finally, the European Central Bank is expected to deliver a 50bp rate hike on Thursday. With this rate hike, the deposit rate will reach 2%.
Inflation in the euro area surprised to the downside in November, giving the central bank an excuse to slow down the pace of its interest rate hikes. However, expect the central bank to use a hawkish tone at Thursday’s meeting.
Summing up, all central banks are expected to raise the interest rates by 50bp this week as the global financial conditions continue to tighten.
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