FOMC Meeting, UK inflation up slightly

• Attention turns to today’s FOMC meeting
• UK inflation data for November came in slightly above expectations
• Japanese business sentiment improves, outlook cautious

Today market attention will be focussed on the FOMC decision, announced at 19:00, with the FOMC widely expected to raise the target rate by 25bps to 0.50-0.75%

This would be the second hike in the current cycle that commenced a year ago. We expect a dovish hike at today’s meeting as Barclays Research notes “…FOMC hawks do not seem overly anxious to tighten aggressively…”

The “dot plots” will be of interest to see where FOMC members may have adjusted their expectations for the path of future policy. Currently, market expectations are for around two hikes next year and one the year after

UK inflation printed slightly above expectations yesterday, jumping from 0.9%y/y in October to 1.2%y/y in the November release, with the headline level confirming the expected upward trajectory fuelled in part by GBP depreciation but also by rising oil prices and the unwinding of base effects from past oil price depreciation

After the release, Barclays Research have “…fine-tuned our inflation forecasts. We expect 2017 CPI to print 2.5%, up 0.1pp from our previous forecast…”

The quarterly BoJ Tankan found that companies were more upbeat than three months ago but remained cautious in their outlook. Japanese business sentiment improved overall in December, especially in manufacturing, likely reflecting the improved market conditions since the US presidential election

However, companies expected conditions to deteriorate towards March, suggesting they remained cautious amid uncertainty around the outlook for policy and exchange rates under the new US administration, among other factors

Todays’ currency rates: