This week, the central banks of the United Kingdom, Europe, and the United States are scheduled to announce their latest monetary policy decisions. As the markets await their verdicts, it is a good time to take a comprehensive look at the key indicators affecting the currency markets.
According to Bloomberg, the Bank of England (BoE) is expected to announce its latest interest rate decision on Thursday, with a 70% probability of a 0.5% rate hike. However, last week’s economic data showed an increase in Public Sector Borrowing and a decline in car manufacturing to its lowest level in 66 years, along with a weak Services PMI reading. Meanwhile, markets are currently pricing in a 0.25% rate cut by the BoE in Q3 2023. Given these factors, market analysts are watching closely to see if the BoE will opt for a 0.5% or 0.25% rate hike and whether the recent housing data will impact its decision-making. Should GBP/USD fail to gain ground above the 1.2450 technical resistance level, some experts predict that the rally from the 1.0360 September low may be over and that GBP/USD could start to trend lower.
The ECB is expected to announce its latest interest rate decision on Thursday, with a 95% probability of a 0.5% rate hike. ECB President Christine Lagarde has stated that she will “stay the course” on interest rates. Meanwhile, German IFO President Clemens Fuest has expressed optimism that the German economy will avoid a technical recession in the coming months, which could bode well for EUR/USD to break above the psychologically important 1.1000 level.
The Federal Reserve is also expected to announce its latest interest rate decision on Wednesday, with a 95% probability of a 0.25%. The US interest rate is currently at 4.5%, with a terminal rate of 4.9% predicted by Bloomberg. This week will also see the release of the US Non-Farm Payrolls data on Friday, which is expected to provide further insight into the state of the tight labour market and whether the Fed will continue its rate hike cycle. It is worth noting that a weaker dollar will increase imported inflation.
It will be a highly watched week for currency markets as the UK, Europe, and the US central banks announce their latest monetary policy decisions. Market analysts will monitor the latest economic indicators, including employment data and inflation, to better understand the currency markets’ direction.
What to watch:
Tue Jan 31
09:00 EUR German Prelim GDP
10:00 EUR Prelim GDP
13:30 CAD GDP
Wed Feb 1
10:00 EUR CPI Flash Estimate
19:00 USD FOMC Interest Rate Decision/Statement/Press Conference
Thu Feb 2
12:00 GBP BoE Monetary Policy Report/Interest Rate Decision
13:15 EUR ECB Interest Rate Decision/Statement
13:45 EUR ECB Press Conference
Fri Feb 3
09:00 EUR Final Services PMI
13:30 USD Unemployment Rate/Non-Farm Employment Change/Average Hourly Earnings
15:00 USD ISM Services PMI