Bank of England in the grip of uncertainty

After summing up the FOMC meeting and in the absence of important macroeconomic data, the issues of budget formation come to the fore. On the eve, Trump tried to reach an agreement with the Congress on the budget for 2019, at stake was the termination of funding for the work of the government already this coming Saturday.

Given the complexity of the issue, there is no final decision, but the interim measures taken will allow the government to finance another seven weeks, until February 8, 2019.

Today, final data on GDP for the 4th quarter, the November dynamics in orders for durable goods and data on personal income and expenditures will be published. The last parameter is important in assessing inflation expectations and can cause increased volatility.

Eurozone

The euro in the last decade of December will hold with a high degree of uncertainty, in any case, the chances of a traditional Christmas rally are low due to the lack of macroeconomic incentives. In November, inflation in the eurozone fell below the target level for the first time in six months, largely due to lower energy prices, and, more worryingly, core inflation also has a downward trend.

Nevertheless, this trend is not cause for concern, most banks in their forecasts see the prospect of rising inflation after a short period of stagnation. Here, the basis for the positive is the rise in average wages, which, in accordance with the Phillips rule, will spur price increases in the coming months. Also in favor of the euro and the likely completion of the PMI decline period, which was observed for almost the whole 2018.

Today, EUR / USD may try to overcome the wide resistance zone of 1.1495 / 1520 if the macroeconomic data from the US turns out to be worse than expected.

Great Britain

The Bank of England left the monetary policy unchanged, because, due to the strong growth of uncertainty regarding Brexit, expectations largely depend on political, not economic factors.

The committee also noted that there are positive shifts in inflation expectations, since the fastest growth in average wages in almost 10 years and a weak increase in labor productivity will lead to an increase in inflationary pressure, despite a slight decrease due to falling oil prices.

At the moment, the markets see a 60% chance of a one-time quarter-per-cent rate increase next year, but this data cannot be taken into account due to the fact that the Bank of England's response to the exit scenario "will not be automatic" there are possible changes in any direction, both in the direction of monetary policy easing, and in the direction of tightening.

Uncertainty about Brexit led to a reduction in business investment, which, paired with the tightening of global financial conditions and a decrease in business activity in the eurozone, led to a slowdown in economic growth.

The parliament, having failed to find a solution under the agreement, went on vacation, the voting will take place after January 14, a little more than three months remain before leaving the EU, and the scenarios for the development of events differ on a critically large number of parameters. For example, on March 29, a withdrawal from the EU may not occur at all, that is, the date may be postponed to a later date if any unaccounted factors arise. A second referendum may be held, although the likelihood of such a move looks low so far, new elections may be initiated, or Labor's main opponents of the deal will change their position, and, finally, there may be a way out without a deal. It is the course of events that will be decisive in evaluating the monetary policy of the Bank of England, and therefore the predictions for the pound.

On Friday morning, GBP / USD has no direction and continues to trade in the sideways range. Today final data on GDP in Q3 will be published, no changes are expected, the absence of important macroeconomic data will keep the pound in the range. An attempt to reach the resistance of 1.2705 is likely during the day, but there are no sufficient grounds for the development of the upward movement.