On Wednesday, the Bank of England will release its quarterly bulletin, while ECB President Christine Lagarde will participate in a panel discussion titled “Beyond Crisis: Unlocking Europe’s Potential” at the World Economic Forum Annual Meeting in Davos.
Finally, on Friday, attention will shift to the Bank of Japan’s monetary policy announcement. The day will also feature the release of flash manufacturing and services PMIs for the eurozone, the U.K., and the U.S. In addition, the U.S. will report existing home sales data.
Wage growth exceeded expectations last month, reinforcing the BoE's decision to keep rates unchanged in December. However, analysts argue that the reliability of the data remains a concern. Any wage growth surprises could influence the BoE's future decisions regarding monetary policy. For now, markets are pricing in 65 bps of rate cuts for this year.
Analysts from RBC suggest that underlying inflation signals might be skewed by the GST holiday, which began mid-month and impacted a range of consumer items such as groceries, toys, and restaurant meals. One of the main drivers of total CPI and core measures, the mortgage interest costs, are expected to moderate due to the recent easing by the Bank of Canada.
Regarding monetary policy, the Bank of Canada is expected to deliver a 25 bps rate cut at this month’s meeting.
Core inflation figures are gradually aligning with the 2.0% target, signaling that inflationary pressures have eased compared to prior years. This shift suggests a more stable and balanced economic environment in New Zealand.
Canadian retail sales for November are expected to remain steady, with strong auto and gas station sales driven by higher prices, but weak core sales are likely to offset the growth, according to analysts from RBC.
Analysts at Wells Fargo argue that despite a less hawkish tone in December and Governor Ueda's cautious stance on wage data, the case for further tightening remains strong. Japan’s core inflation remains above 2.0%, November labor cash earnings rose 3.0% y/y, and reports suggest the BoJ may raise its inflation forecast in January. These factors strengthen the likelihood of a rate increase in January, supporting the view of solid economic growth and persistent price pressures.
Political uncertainty in Germany and France and potential U.S. tariffs add downside risk to the consensus forecast, Wells Fargo analysts note. With slow GDP growth projected at 0.9% for 2025, the analysts anticipate the ECB to cut rates by 25 bps at each meeting through June followed by a final cut in September.
This article was written by Gina Constantin at www.forexlive.com. Read More Details
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