Raising rates by the expected 0.25%, marking only the second hike in a decade, Janet Yellen struck a hawkish tone on Wednesday despite warning of a ‘cloud of uncertainty’ that will only disperse once Donald Trump has outlined his intentions more fully. The Fed chair also got a subtle dig in at one of the President elect’s most discussed policies, hinting that the proposed infrastructure spend may make little difference to the country’s fairly healthy labour market. Arguably the most important news market-wise is that the central bank now expects 3, not the previously stated 2, rate hikes in 2017 – likely to combat the incoming Trumpflation – a revision that sent the dollar index to a 14 year high.
The greenback immediately made its presence felt this morning, taking half a percent off the pound (sending sterling back below $1.255) and 0.7% against the euro (taking the currency under €1.05). And while this move has helped lift the DAX and CAC by 0.2% and 0.4% respectively, the FTSE looks far more reserved, slipping 20 points after the bell.
That might be because the UK has its own central bank appointment this Thursday, with the latest Bank of England rate vote result coming later this afternoon. And while Carney and co. are expected to leave things unchanged, investors will be on the lookout for any shifts in tone regarding the BoE’s position in 2017. The UK also sees the release of November’s retail sales reading, which is forecast to fall from 1.9% to 0.2% month-on-month; that would be a disappointment considering the period includes Black Friday/Cyber Monday.