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Focus Turns To Federal Reserve (Fed) Interest Rate Meeting

The latest monetary policy update from the US Federal Reserve (Fed) remains the key focus this week. The Fed’s updated guidance on tapering could set the tone for risk appetite heading into next year. The US remains relatively well supported ahead of Wednesday’s key meeting as inflation data rose faster than expected. Headline inflation jumped to 4.4% year-on-year (Y-O-Y), while the Fed’s preferred inflation reading and core inflation increased by 3.6% Y-O-Y in September. Analysts have brought forward rate hike projections with several banks predicting the first hike in July next year, followed by a further increase in November 2022.

In terms of economic releases, it remains relatively quiet before that, however markets will digest the updated Institute for Supply Management (ISM) Non-Manufacturing Data or Purchasing Managers’ Index (PMI) on Wednesday.

Sterling Under Pressure Ahead Of Bank Of England (BoE) Rate Decision

The Sterling came under pressure on Monday ahead of the Bank of England Monetary Policy (BoE MPC) meeting as investors seek guidance on the Bank’s forecasted lifting of interest rates and reduction of its bond-buying programme. The base rate is at a historic low of 0.1% where it has remained since the BoE made two emergency cuts at the onset of the pandemic in March 2020. Following recent hawkish comments from the members of the BoE, many economists are predicting a 15-basis point (bp) rate hike.

There are no major releases today from the UK, however Chancellor Rishi Sunak is scheduled to testify to the House of Lords’ Economic Affairs Committee following his Budget report last week.

France Agrees To Delay Retaliatory Measures Whilst Talks Over Fishing Rights Continue

Post-Brexit tensions between the EU and UK appeared to ease yesterday following the French President Emmanuel Macron’s announcement that France will delay retaliatory measures whilst talks over fishing rights continue. The retaliatory measures in question had included trade disruptions, port bans and the seizing of a British trawler. Lord Frost, the British Brexit Minister, is now due to travel to Paris on Thursday to conduct further talks with Clement Beaune, France’s Europe Minister.

Looking ahead to today, it is a slightly busier calendar for the Eurozone. We have a plethora of manufacturing PMI from Spain, Italy, France and Germany this morning along with the final manufacturing PMI reading. The expectation is for the manufacturing sector to have remained unchanged at 58.5 but still demonstrating industry expansion.

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