It’s a jam-packed pre-holiday week, full of the biggest central bank meetings and important data. Markets continue to place bets on early rates cuts with the ECB out front with the most policy easing priced in by money markets, followed closely by the Fed and then further back, the Bank of England. All three banks meet this week and are expected to stand pat on rates. But it is what they have to say about the recent dovish repricing which will be crucial for markets in the new year. The hope of more liquidity in the system has sparked an “everything rally” so whether this can be sustained will depend on policymakers’ commentary and forecasts.

US CPI will be released the day before the Fed sits down, with modest price pressures expected. The FOMC will release their updated macro and rate forecasts along with the dot plots. Sustained evidence of disinflation and the labour market coming into balance has been seen since the last meeting. That means policy is probably now restrictive enough to bring inflation back to target. Key will be if the projections validate the rate cut theme or if members push back on the current aggressive pricing and easing of financial conditions. 

The ECB will likely rule out the chance of any further hikes and hopes to guide markets to a more neutral policy outlook. The pace of the inflation downtrend will be in focus as President Lagarde tries to keep the peace between the hawks and the doves on the Governing Council. Subdued economic data has steadied at low levels but the labour market and wage growth remain relatively solid. New staff projections may reveal downward projections to both growth and inflation. But Lagarde could try and counter this with a higher for longer bias in the press conference. If she doesn’t, then the euro could take a dive as markets get ready for the start of rate cuts early next year.

Erring on the side of caution will probably be the Bank of England’s stance as inflation remains too high, along with falling wage growth, with fresh figures published on Tuesday. Just under three rate cuts are priced into the UK for 2024, so less than the US and euro zone, but Governor Bailey has already railed against this easing. This stance is expected to continue at Thursday’s meeting, with possibly more emphasis on rates staying restrictive for an extended period.

With PMI survey data and a slew of China figures released at the end of the week, volatility will remain high into the weekend. Markets will also focus on the yen after its wild ride last week and near 600-pip range. Speculation of imminent policy normalisation has ramped up, while the lower global yield environment and drop in oil prices are supporting the Japanese currency.

In Brief: major data releases of the week

12 December 2023, Tuesday

-UK Jobs: Wage growth is the key number for the Bank of England. The headline is forecast to slow one-tenth to 7.8%. The ex-bonus figure is seen sliding to 7.4% form 7.7%. Unemployment held steady at 4.2% previously but is predicted to increase.

-US CPI: Headline inflation is forecast to rise 0.1% m/m and the core at 0.2% m/m. That translates into annual prints of 3.1% for the headline and 4% for the core. That matches the October increase. Policymakers mostly see CPI still above target even if it is coming down. Gold bugs will be hoping for a big miss in the data to push yields down to fresh cycle lows and hit the USD. Support may come at $2000, after last Monday’s spike to record highs at $2148.

13 December 2023, Wednesday

-UK GDP: Expectations are for October’s monthly GDP to contract by 0.1%. That comes against growth of 0.2% in the prior month. Higher interest rates are slowly hitting fixed term borrowing costs.

–FOMC Meeting: The Fed will keep rates unchanged at 5.25-5.50%. Updated quarterly economic projections and dot plots are published. Focus is on hints around how soon and far rates will be cut. The Dollar Index has found support at its 200-day SMA at 103.56. A move towards 104 might be seen if policymakers push back against the rate cuts in the second quarter of 2024.

14 December 2023, Thursday

–Bank of England Meeting: The bank will stand pat and keep rates at 5.25% for the third straight meeting. Inflation is falling but easing wage growth is still not consistent with the MPC’s 2% CPI target. There is a zone of support around 1.2463/85 with near-term resistance at 1.2612/13.

–ECB Meeting: Rates will remain unchanged for the second meeting in a row. Negative growth is seen in the final two quarters of the year with PMIs still weak, while core inflation fell below 4% in November. The euro fell for a second straight week, the first time this has been seen since late September and the extended sequence of weekly losses. Prices are at a pivot point around the 100-day SMA and major Fib level (38.2%) of the summer rally at 1.0762/64.

15 December 2023, Friday

–China Data: Industrial production, retail sales and fixed asset investments are all seen printing above the October readings. But soft consumer confidence is delaying a strong recovery with the outlook still uncertain.

–Eurozone PMIs: Manufacturing activity may be recovering slightly from a very low base. Services are seen remaining below 50. Any fresh wage commentary will be watched by the ECB as this could have inflationary repercussions.