The week ahead

The main issue of the week is the Federal Reserve Meeting, which will see the Federal Open Market Committee (FOMC) raise rates once again, but the more critical element will be any pointers on the forecast for next year, given recent speeches advising the Fed is closer to a ‘neutral’ rate.

With Wednesday’s session of Federal Reserve policymakers their last of 2018 and, arguably, the most significant. They are predicted to raise rates for the fourth time this year to a range of between 2.25 and 2.50 percent, but is what they signal for next year that should help shape asset allocation decisions for 2019. 

The most recent comments from Jay Powell, the Fed chair, that the level of interest rates are “just below neutral,” was accepted by some investors as a sign that the Fed was readying to employ this week’s meeting as an opportunity to dial back its forecasts for how much further it will raise rates next year. 

Mr Powell’s press conference will be closely scrutinised. Policymakers meet against a backdrop of a flattening yield curve, developing cracks in credit and increased volatility in equities. Investors will watch to see if the central bank is becoming more cautious about the outlook next year for the US economy where the impact of tax cuts will diminish and the risk of slowing global growth prevail.

 

Will it be a quieter week for the pound? 

The pound is set for further turbulence until at least January 21 as unknowns about the UK government’s Brexit plans multiply following a tumultuous week for UK politics and for the currency. 

Sterling picked up both declines and successive gains of about 1.5 percent throughout last week. December 10 proved to the be the third worst trading day of the year for sterling when the currency saw a 1.3 percent decline provoked by UK prime minister Theresa May’s judgment to adjourn a parliamentary vote on the government’s Brexit deal. This sent the pound to its lowest levels against the dollar since April 2017.

In the final week before Christmas, UK gross domestic product (GDP) and consumer price index (CPI), plus US durable goods, are other important data points. Corporate news has practically dried up ahead of the festive season, with only a few names on the calendar.