Watching USD, GBP and EUR as Fed, BoE and ECB interest rate decisions unfold - IG

(Partial video transcript)

Fed announces rate cuts, BoE and ECB put rates on hold

Angeline Ong: As I mentioned earlier, we just had the ECB, as expected, standing pat on interest rates. IG's Chris Beauchamp joins me now. As expected, Chris, but they did tweak their outlook slightly, didn't they?

Chris Beauchamp: Yes, cutting inflation forecast, really. And I think for the BoE the ECB, that work has been done for them by the Fed. They have to dance to the Fed's tune. The Fed saying inflation is coming down. It's hard for the two of these two central banks to go against that, really, I think. And as we said, with the dollar weakening, that pushes up the pound and the euro and that effectively tightens monetary policy for them anyway. So, it makes sense for both of these central banks to remain exactly where they are for the time being.

Angeline Ong: Now, what happens if the Fed starts cutting slightly more aggressively in the first half of next year? Are we likely to see the ECB having to follow suit?

Chris Beauchamp: That could be the problem, I think, because, of course, that should then push the dollar down even further, which drives the euro higher, which again, acts like an interest rate rise. And some of the ECB will find itself with monetary policy tightening outside of its control, if you like driving, "Look mum, no hands" almost with no sense of control over what's happening next. And then, that makes life more difficult for the Eurozone economy, which as we know, is struggling much more than the US. So, I think yes, if the US goes first again BoE and the ECB will just find that the decisions have been taken for them and will have to move in response.

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2023-12-14 15:09:11Z
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