The US Federal Reserve Bank has not put an end to its rate-hike cycle, it is just moving away from well-telegraphed moves. After eight hikes over the last three years, the Fed is at an inflection point against the backdrop of slowing global growth and weaker inflation pressures. The Fed’s is switching from well-telegraphed monetary decisions to a more data dependent, on-the-go approach. Starting next year, Jerome Powell will hold eight press conferences, compared to only four this year.
Investors have become increasingly negative about inflation. The 2-year breakeven inflation rate eased more than 50bps to 1.285% in less than two months. Against such a backdrop, investors are switching attention towards the other central banks and more particularly the European Central Bank, which is expected to end its quantitative easing program by the end of the year. EUR/USD bounced back and stabilised around 1.14 over the last couple of days. We maintain our bullish EUR/USD view; however, one should keep an eye on the ongoing Brexit negotiations and Italy/EU clash.
October’s core personal consumption expenditure – the Fed’s favourite gauge of inflation – eased to 1.8% annually versus 1.9% expected and a downwardly revised figure of 1.9% in the previous month. And not just inflation has been disappointing. Last week, the economic surprise index went negative for the time since October 2017.
By Arnaud Masset
