European Session:

The key events in the European session will be the monetary policy decisions from the Bank of England (BoE) and the European Central Bank (ECB).

The BoE is widely expected to cut interest rates by 25 basis points, reducing the Bank Rate from 4.00% to 3.75%. Market consensus suggests a close vote of 5-4 in favour of the cut, with Governor Bailey joining the dovish side this time. Traders should watch for any surprises in the vote split or forward guidance, although no press conference will follow this meeting.

Meanwhile, the ECB is anticipated to keep its policy rate steady at 2.00%. Updated economic projections are due, and an upgrade to the growth and inflation forecasts is expected. Despite this, the ECB is unlikely to alter its recent data-dependent approach, which involves meeting-by-meeting decisions without committing to a predetermined rate path.

American Session:

The highlight of the American session is the release of the latest US Consumer Price Index (CPI) report.

Headline CPI year-on-year is forecast at 3.1% compared to 3.0% previously, while the month-on-month figure is expected to remain steady at 0.3%. Core CPI year-on-year is projected at 3.0%, unchanged from prior figures, with the month-on-month number anticipated at 0.3%, slightly above the previous 0.2%.

There is some expectation that this report could provoke a volatile or “messy” market reaction similar to the recent Non-Farm Payrolls report, due to issues stemming from the October government shutdown. However, traders are likely to focus more on how the data might influence the Federal Reserve’s hawkish members.

Despite a recent unemployment rate of 4.6%, which surpasses the Fed’s projected year-end rate of 4.5%, inflation has consistently come in below the Fed’s forecasts. For 2025, the Fed expects Core Personal Consumption Expenditures (PCE) inflation to be 3.0%. This suggests the labour market may be signalling a potential earlier-than-expected rate cut.

Therefore, if today’s CPI data meets expectations or, better still, surprises to the downside, the market may adopt a more dovish stance. Softer inflation figures could encourage hawkish Fed members to support a rate cut sooner. Conversely, an upside surprise might have limited impact on the long-term outlook but could weigh on sentiment in the short term.

Original Source: Giuseppe Dellamotta of investinglive.com