Markets await this weeks Fed, BoE and ECB interest rate decisions
Monday 30 January, 2023
Daily Currency UpdateAfter a relatively quiet January on the data front, this week brings a slew of interest rate decisions from central banks around the world which will likely cause foreign exchange volatility from Wednesday night onwards. The Bank of England is due to announce its latest policy decision on Thursday at midday with most market participants expecting a hike of 50bp to be confirmed by BoE Governor, Andrew Bailey. Should this come to fruition it would be the fifth hike of at least 50bp in a row as the Bank tries to bring inflation under control in a way that is above its 2% target. The Consumer Price Index currently stands at 10.5% however it has fallen for two consecutive months and there is growing hope that we should see a steady fall as we head into 2023. There is also a feeling that some of the extreme doom and gloom predictions about the UK economy that aired at the end of 2022 may be toned down a little with the Bank scheduled to produce updated growth and inflation forecasts. Although the UK is likely to be confirmed as being in technical recession when the preliminary GDP reading for Oct-Dec 2022 is released next week there is some optimism it may not be as deep or long-lasting as previously expected. GBP/USD traded in a relatively narrow range last week between 1.2250 and 1.2450 however a break high/lower could be on the cards depending on the BoE's rate decision and the US Federal Reserves the evening before. GBP/USD is currently just below 1.24 with GBP/EUR around 1.1380.
Key MoversThe US Federal Reserve’s latest interest rate decision is due Wednesday evening with a further moderation of the pace of rate hikes likely with a 25bp rise as the baseline scenario for most analysts. With recent CPI prints showing that US inflation is on a steady downward trajectory and last week’s GDP data showing higher-than-expected growth for Q4 2022. The Fed's will hope its aggressive hiking cycle in 2022 has done the job of bringing price rises under control whilst achieving a "soft landing" whereby the economy doesn't slip into a recession later this year. A day after the Fed's decision and shortly after the BoE's the European Central bank is also due to announce its latest policy decision with a 50bp rise from ECB Governor, Christine Lagarde predicted. Inflation for the Eurozone is also heading lower with it currently at 9.2%. We get the latest estimate the day before the decision with a further fall to 9% eyed. Even if this comes out much lower, we should expect Lagarde to confirm 50bp and signal that more is on the way. With so much focus on the central bank decisions and especially the accompanying statements/commentary, we should expect most major currencies to be relatively rangebound before some potential big moves from Wednesday evening onwards. This year’s big winner has been the euro with EUR/USD nearing 1.09 as the dollar is sold off on the back of improving market sentiment and the Feds hiking cycle expected to end sooner than was expected late last year. Away from policy decisions this week also sees the latest jobs data from the States on Friday with a reading of 193k for Jan the median estimate for the headline Non-Farm Payrolls release.
- GBP/USD: 1.2300 - 1.2430 ▲
- GBP/EUR: 1.1310 - 1.1410 ▼
- GBP/AUD: 1.7400 - 1.7600 ▲
- EUR/USD: 1.0820 - 1.0925 ▲