USD up slightly ahead of major Central Bank meetings
Tuesday 31 January, 2023
Daily Currency UpdateUSD ticked slightly higher on Tuesday ahead of a bundle of upcoming central bank decisions. The Fed will meet to set interest rates on Wednesday, followed by the European Central Bank (ECB) and Bank of England (BoE) meetings on Thursday. The widespread consensus is that the Fed is likely to hike the rates by another 25bps at the conclusion of tomorrow’s meeting. The Fed has communicated that the rates are expected to rise to about 5.25% and hold at that level for the rest of 2023. If we see another 25bps rise tomorrow, that will most likely mean one more rate hike (expected in March) and then perhaps an elongated pause. USD index did pick up some momentum and managed to leave behind the key 102.00-mark, trading at a high of 102.31 against the backdrop of persistent prudence ahead of the FOMC meeting on Wednesday. All said and done, further gains are likely above 102.80 mark.
Key MoversAs inflation remains at painful levels in Europe, the ECB is set to take the lead on Thursday. Markets widely assume the ECB will hike interest rates by 50bps with a firmly hawkish tone. The BoE is also expected to raise interest rates by 50bps in the face of high inflation. Although the annual rate fell to 10.5% in December, it is still more than five times the bank’s 2% target. The IMF's winter update was otherwise upbeat, raising the Fund's growth forecasts for the first time in a year, reflecting the reopening of the Chinese economy. The reopening boost was in full force overnight as the official Chinese composite PMI rocketed back into growth territory, hitting a 7-month high of 52.9. Both the manufacturing and services sub-indices rose back above the key 50 threshold that typically indicates growth. Canadian GDP grew by 0.1% vs the expected 0%. USD/CAD edged slightly lower with the initial reaction and was last seen trading at 1.3437. WTI pauses the two-day downtrend near $78.00 as hopes of an end to the Covid woes renew energy demand anticipations.
- EUR/USD: 1.0806 - 1.0889 ▲
- GBP/USD: 1.2291 - 1.2392 ▲
- AUD/USD: 0.6987 - 0.7082 ▼
- USD/CAD: 1.3338 - 1.347 ▼