MACRO: Summary of central banks' decisions

5:46 PM 14 December 2023

Traders were offered a number of monetary policy decision from major central banks this week. FOMC decision yesterday was a key event of the week, but the 4 central banks that announced their decisions today were also watched closely. Below is a quick summary of all 5 decisions announced this week.

Federal Reserve

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FOMC meeting was a key event of the week. US central bank left interest rates unchanged in-lien with market expectations. Attention was mostly on new set of forecasts, especially interest rate forecasts. Dot-plot showed a median expectation for 3 rate cuts next year (75 basis points). While this was less than priced in by money markets (~100 basis points), it was much more than hinted in September's forecasts (25 basis points). This has triggered a dovish reaction on the markets, with Dow Jones and Nasdaq-100 jumping to fresh all-time highs while S&P 500 is trading less than 1% below its record levels.

Source: Federal Reserve

European Central Bank

ECB left key interest rates unchanged at today's meeting, in-line with market expectations. A new set of economic projections pointed to a slower inflation in 2023 and 2024 as well as slightly weaker GDP growth. However, in spite of lower inflation forecasts, ECB President Lagarde sounded hawkish at the post-meeting press conference. Lagarde said that rate cuts were not discussed at all and that recession is not in ECB's baseline scenario. On top of that, ECB said that it will slow PEPP reinvestments in the second half of 2024 and discontinue them altogether by the end of 2024. EUR gained in response. EUR strength combined with post-FOMC USD weakness are pushing EURUSD towards 1.10 today.

ECB sees lower inflation ahead than it did at the September meeting. Source: ECB

Bank of England

Bank of England kept interest rates unchanged at 15-year high at a meeting today, in-line with market expectations. BoE said that there is still a way to go in the inflation fight and hinted that rates will stay at elevated levels for some time. Inflation in the United Kingdom remains the highest among G7 currencies and more than double BoE target. BoE Governor Bailey said that it is premature to say that interest rates have peaked and the BoE is more cautious than markets, which are pricing in an aggressive easing next year. However, he also said that there are some encouraging signs on inflation. The meeting was somewhat hawkish and GBP gained in response.

GBPUSD is up 2% since yesterday's evening, boosted by dovish FOMC meeting and somewhat hawkish BoE meeting. Source: xStation5

Swiss National Bank

Swiss National Bank also kept interest rates unchanged, in-line with market expectations. The main rate was left unchanged at 1.75%. Swiss franc gained following the decision. This is an interesting development given that SNB dropped wording on possible further rate hikes from its statement and noted that inflationary pressures have decreased slightly. This can be explained with a change in bank's FX policy. Namely, SNB repeated that it is prepared to intervene on the FX market but said that the intervention can go both ways and will not be limited to sales, which are conducted to weaken CHF.

EURCHF dropped following SNB rate decision but has recovered all the losses later on as EUR gained following ECB meeting. Source: xStation5

Norges Bank

Norges Bank was the only one of major central banks scheduled to announce decision this week that surprise the markets. No change in the level of rates was expected, but the Bank decided to deliver a 25 basis point rate hike, to 4.50%. However, it was noted that this was likely the final hike in the current cycle, and now rates will stay at 4.50% for some time. While it was suggested that it is the final hike, the fact that Norges Bank decided to push rates higher even as other central banks are preparing to cut borrowing costs driven a strong hawkish reaction on NOK market - EURNOK plunged following the decision and is now trading 1.8% lower on the day.

EURNOK plunged to a 2-month low following an unexpected rate hike from Norges Bank. Source: xStation5

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