Fed on Track for December Rate Hike

Wells Fargo Research Team Wells Fargo

U.S. Review

Fed on Track for December Rate Hike

The FOMC voted unanimously this week to maintain the target range for the federal funds rate at 2.00%-2.25%, a decision widely anticipated by market participants. All signs point to a rate hike at the December meeting.
Midterm elections ushered in a divided government, which is inherently less conducive to sweeping change. As such, we see limited potential for an extension of fiscal stimulus.
Data released this week affirmed the FOMC’s assessment of the economy as strong. The ISM non-manufacturing index continues to indicate robust expansion and JOLTS data reflected a labor market that is growing historically tight.

Global Review

Challenges Persist in the Global Economy

Chinese foreign exchange reserves fell by nearly $34 billion in October, the third consecutive monthly drop amid continued pressure on the yuan.
With the Bank of Mexico set to meet next week, both headline and core consumer price inflation remains above the central bank’s target.
Real GDP in the United Kingdom accelerated in Q3, growing at a 2.5% annualized pace, the fastest since Q4-2016. More ominously, total business investment declined at a 4.8% annualized rate in Q3 and is now down 1.9% year-over-year, the largest decline since Q1-2016.

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Wells Fargo Research Team

Wells Fargo

EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates

Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold: Volatility persists in commodity space

After losing more than 8% to end the previous week, Gold remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000. The US economic calendar will feature Nonfarm Payrolls and Consumer Price Index data for January, which could influence the market pricing of the Federal Reserve’s policy outlook and impact Gold’s performance.

Week ahead: US NFP and CPI data to shake Fed cut bets, Japan election looms

US NFP and CPI data awaited after Warsh’s nomination as Fed chief. Yen traders lock gaze on Sunday’s snap election. UK and Eurozone Q4 GDP data also on the agenda. China CPI and PPI could reveal more weakness in domestic demand.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.