GBP/USD is unchanged in the Wednesday session. In North American trade, the pair is trading at 1.2652, up 0.10% on the day. On the release front, British CPI dipped to 2.3% in November, down from 2.4% a month earlier. This matched the estimate. There are no major U.S. releases on the schedule, but investors will be busy, keeping a close eye on the Federal Reserve, which is expected to raise rates to a range between 2.25 and 2.50 percent. On Thursday, the U.K. releases retail sales and the Bank of England is expected to maintain rates at 0.75 percent. The U.S will publish the Philly Fed Manufacturing Index and unemployment claims.
With Brexit in the headlines on a daily basis, the markets will shift focus on Thursday to economic releases. Investors will be hoping for a rebound from retail sales, which has posted two straight declines. The forecast for November stands at 0.3 percent. This will be followed by the Bank of England rate decision. The bank is expected to stay on the sidelines and maintain rates at 0.75 percent.
Brexit will not be on the backburner for very long. Earlier this week, Prime Minister May announced that parliament will vote on the Brexit withdrawal agreement in mid-January, and with a no-deal scenario a very real possibility, traders can expect further volatility from the British pound in the coming weeks.
The markets are expecting the Federal Reserve is expected to raise interest rates on Wednesday, which would mark the fourth rate hike in 2018. The odds of a rate hike have dropped sharply – only last week, the odds of a hike stood at 77%, but are currently at 66%. A key factor in the drop is the recent sell-off in global stock markets. Rate hikes are unusual when stock markets are in a downward spiral, but the Fed is likely to press the rate trigger. At the same time, the Fed may try to soothe the nervous markets with a cautious message about further tightening next year, which has sent the U.S. dollar lower ahead of the Fed meeting. Just a few months ago, there was heady talk of three or four rates in 2019, but analysts are now predicting just one hike, as the U.S economy is showing signs of slowing down.
