Fed restarts hiking cycle as markets look to BoE

Frank Walbaum

Important ews this week

Thu, 17th, 13:00 CET UK BoE Interest Rate Decision.
Fri, 18th, JP BoJ Interest Rate Decision.

Fed restarts hiking cycle as markets look to BoE

The Federal Reserve raised interest rates by 25 basis points to 3.75–4.0%, marking its first hike since July 2023. The initial market reaction was negative, but stocks are now recovering, while the US Dollar is gaining momentum. Crypto is also rebounding, and Gold and Silver are moving higher after bouncing from their daily 50-MA. Oil is weaker following its recent advance.
Today, attention shifts to the Bank of England, which is widely expected to keep rates unchanged at 3.75%. The decision comes with UK inflation at 3.1% and energy prices remaining elevated, creating a difficult balance between persistent inflation pressure and a weaker economy.

Market talk

The Fed's new projections are an important part of the bigger picture. Policymakers see only one additional hike in 2026, which leaves the market with a relatively clear but still restrictive policy path. The key question now is whether economic data will justify another move or whether the Fed will eventually pause at current levels. This could keep interest-rate expectations highly sensitive to upcoming US data.
The BoE faces a different challenge. Keeping rates at 3.75% would be a relatively cautious response to inflation that has moved back above 3%, while the energy shock could push prices even higher later this year. Three MPC members already voted for a hike at the previous meeting, so today's voting pattern and guidance could provide an important signal about how divided the committee has become.

Tendencies in the markets

Equities positive, USD stronger, crypto sideways, oil correcting, metals positive, JPY weak.

Author

Frank Walbaum

AUD/USD stays weak above 0.6900 after China’s trade data

AUD/USD struggles to capitalize on the previous day’s recovery and stays defensive on the 0.6900 level following the narrowing of trade surplus in China. Increased December Fed rate hike bets allows the US Dollar to pause its decline and weigh on the pair. US CPI data is next of note for the major.

USD/JPY retakes 158.00 on weak Japanese data; focus shifts to US CPI

USD/JPY attracts some dip-buyers and retakes 158.00 in the Asian session on Tuesday as a fall in Japan’s Household Spending offsets hawkish BoJ Summary of Opinions, undermining the Japanese Yen. Moreover, Fed hike bets support the safe-haven US Dollar and the currency pair. The market focus now shifts to the release of the crucial US CPI report.

Gold sticks to modest losses amid Fed hike bets; holds above $4,100 ahead of US CPI

Gold meets fresh supply, eroding a part of the previous day's strong gains to the $4,150 resistance zone, albeit it holds above the $4,100 mark heading into the European session. Firming US Federal Reserve rate-hike expectations turn out to be a key factor driving flows away from the non-yielding bullion. Meanwhile, the US Dollar struggles to lure buyers amid mixed signals regarding the state of diplomatic talks between the US and Iran, offering some support to the commodity as traders seem hesitant ahead of US consumer inflation figures.

Bitcoin hits lowest weekly close since August as short-term holders slip into losses

Bitcoin fell below $75,000 on Tuesday, after recording its lowest weekly close since August as selling pressure pushed recent buyers into losses.

This weeks’ two big inflation reports will offer perspective

Payrolls on Friday surprised with a big gain, 165,000 new jobs rather than the 65,000 forecast. Also the unemployment rate fell from 4.2% to 4.1% although average hourly earnings are up only 0.4% ($32.75). This weeks’ two big inflation reports will offer perspective. Tomorrow it’s CPI and on Friday, which is a Friday the 13th, it’s PPI.

Gold reclaimed $4,100. Tuesday’s CPI test decides if it holds

Gold (XAU/USD) starts the week on a positive note, reclaiming the $4,100 psychological level as the US Dollar (USD) retreats from its recent highs. The precious metal recovers from Friday's losses, although investors remain cautious ahead of Tuesday's US Consumer Price Index (CPI) report, which could determine the next direction for Bullion.