The US Federal Reserve © AFP

The highlight of the coming week is the policy announcement by the US Federal Reserve. The central bank is widely expected to raise interest rates for the first time in almost a decade.

Trevor Charsley, currency manager of AFEX, says: “The probability of a 25 basis point rate hike is now 85 per cent and it is worth noting that last week the Cleveland Fed commented that PCE inflation [Personal Consumption Expenditure ] is on track to be 2 per cent mid to late 2017.”

Most markets have already priced in a rate rise, so the actual announcement is unlikely to have a huge impact when it is made on Wednesday. In addition to the rate decision, the Fed will also update its economic projections out to 2018. Growth and inflation are expected to be revised downwards from September’s forecasts.

Sweden’s central bank, the Riksbank, is also due to announce its decision on interest rates on Tuesday. The country has been struggling with persistently low inflation since 2013 and interest rates are already in negative territory, but given the Riksbank’s focus on inflation further easing cannot be ruled out. Analysts at HSCB believe the repo rate will be cut from -0.35 per cent to -0.5 per cent before the end of the year is out.

Inflation data for the US and UK in November are also out on Tuesday. In the UK, deflation reappeared in the headline CPI in October with the rate slipping to -0.1 per cent year on year, while in the US the rate crept up to 0.2 per cent year on year in October.

In the UK, a number of small factors, like the base effect of last November’s energy price declines being greater than those in this November, are likely to push the rate back to zero year on year. In the US, the rate is expected to tick up to 0.5 per cent year on year. Rental inflation is one item that is exerting upward pressure.

UK labour market data are out on Wednesday after data for the three months to September were mixed. While the unemployment rate fell to 5.3 per cent, earnings growth (excluding bonuses) was lower than anticipated at 2.5 per cent year on year.

The latest data for the three months to October are expected to show a further decline in wage growth, with the annual rate falling to 2.3 per cent and the unemployment rate expected to remain at 5.3 per cent.

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