As always happens the following week at the meeting of the European Central Bank, it is the time for Federal Reserve to talk about interest rates.
Janet Yellen, Fed’s outgoing Governor, announced that the central bank of the United States decided to keep interest rates unchanged at 1,25%.
Currently, the Federal Reserve is concerned with inflation which is well below the target of 2%. The Fed hopes to reach the desired target within 12 months.
American GDP is growing by 3% in the third quarter of 2017 and unemployment is down. The normalization process of the Fed’s budget that started in October 2017 will continue.
This week, however, the Federal Reserve was the protagonist of another important thing: the appointment of new Governor.
US President Donald Trump has named Jerome Hayden Powell as the new Federal Reserve Governor. Class 1953, Jerome Powell is Republican, governor of the American Central Bank in the term of 2012 and consequently a member of the FOMC. His new mandate should start in February 2018.
Powell belongs to the dovish faction and his appointment will have continuity with the previous management, not exposing the markets to too much oscillation.
After EUR / USD descending spiral caused by the Quantitative Easing decision of the European Central Bank, the euro-dollar exchange rate traveled to a slightly bullish channel reaching the 1,1670-80.
Following the appointment of the new Governor with dovish tones, EUR / USD began to travel down to around 1,160.
Meanwhile, over the ocean, also the Bank of England had to take the decision on interest rates. For the first time since 2007, the UK central bank raised rates to 0,25%.
Bank of England reported the interest rates at August 2016 levels when it decided to cut them further to help the British economy after the referendum on Brexit.
UK central bank expects an increase of inflation to 3,2% in October, against the previously estimated 3%. The Quantitative Easing program remains unchanged at £435 billion, the corporate bond target is fixed at 10 billion.
Bank of England expects to raise interest rates gradually over the next three years.
Despite the rise in interest rates, sterling has plummeted by losing more than 1% against the euro and the dollar. GBP / USD reached the 1.31 threshold, while EUR / GBP returned to 0.8890.
The pound fell sharply against the dollar and the euro also because the forecasts on inflation and the general tone of the statement presented a noticeable cautious note.
The market movers of next week will provide analysts numerous ideas to reflect on, albeit to a lesser extent over the past two weeks.
After the Fed meeting and after the Bank of England interest rates rise, the Economic Calendar will be enriched again of interesting market movers in the coming days.
The focus will be mainly on the data coming from the Eurozone, including the composite and services SME and retail sales. In addiction, there will be ECB’s Economic Bulletin, following the October meeting.