Fed doubles interest rates

Look! It's Godot!
After two years of increasingly tedious anticipation the US Federal Reserve has doubled its target for the Funds rate from 0-0.25% to 0.25-0.5%. They said they were going to do it. They've done it. And the sky has not fallen down. 

Inevitably there was a degree of volatility for the US dollar after the Fed announced the rate increase. Over the next hour and a half, at the extremes, it covered ranges of more than a cent against the euro and the pound. When the pseudo-excitement had died down the dollar settled into a gentle upward drift that took it higher on the day against all the other major currencies. It is up by a cent against the euro and the pound. 

As expected, the Fed chairperson was at pains to reassure the world that future rate increases will be slow to come and small in scale. She was also keen to point out that yesterday's hike represents an endorsement of US economic vitality. The message went down well around the world and global equity markets, which might have been spooked by the rate increase, are generally higher.

Sterling rates remain low
No more than a couple of days after a Bank of England deputy governor warned that interest rates should remain low until wage growth accelerates, wage growth slowed from 3.0% to 2.4% a year. The news did not greatly trouble the pound but it didn't help.

On the face of it, yesterday's UK employment data looked alright. Although the number of jobseekers rose by 4k the rate of unemployment fell to 5.2%. The implication there is that more people are entering the jobs market because they have greater confidence that they will find one. However, that increased participation means reduced upward pressure on pay and reduced pressure on the Monetary Policy Committee to take interest rates higher.

The longer the MPC keeps rates steady, the greater the likelihood that by the time they do think about making the move they will find themselves in the shadow of the EU referendum. That uncertainty would militate against a rate increase.

Retail sales
With the Fed rate decision out of the way, the FX market ought to be able to get back to business as usual today. That means paying attention to the economic statistics that everyone knows and loves. For sterling the most important of those will be UK retail sales.

October's retail sales were more than a little disappointing, with a monthly fall of -0.6%. Today's data for November should be better than that but will perhaps still not be enough to offset the previous month's decline. Investors will find it easier to punish sterling for bad figures than to extol it for good ones.

There is not much else of any consequence on the agenda. In Europe the highlight will be the Norwegian central bank's rate decision. In the States it will be the weekly jobless numbers.