Strap yourselves in for a pivotal week in financial markets as we get rate decisions by the Fed, ECB and the BOE all within 18 hours or so of each other.
The data calendar is also chock-a-block with key top tier economic reports which may generate potential high volatility as well. These include the US monthly nonfarm payrolls and ISM, eurozone inflation and GDP, as well as several megacap tech titan earnings releases from Apple, Amazon, Alphabet, and Meta.
There’s bound to be some interesting price action for sure, in a week which features an unprecedented amount of risk events:
Monday, January 30
Tuesday, January 31
Wednesday, February 1
Thursday, February 2
Friday, February 3
Major central banks could set market tone for rest of the year
Certainly, the central bank interest rate decisions are already baked in by markets:
Anything else would be a surprise.
So rather than the actual hikes, the real uncertainty lies with their accompanying communications.
Markets risk being surprised by still-hawkish Fed
The FOMC message could be quite strongly influenced by some of that critical data before the meeting. In turn, it could look dated by the end of the week with the US jobs report finishing off the week.
Falling inflation and signs of a weakening economy have increased the chances of smaller hikes going forward at the FOMC. Interestingly, the annual rotation of regional bank presidents with voting rights is expected to lead to a more dovish set of voters.
Crucially, the inflation peak is now behind us, but the labour market remains strong and relatively tight.
That could mean wage pressures flare up in the coming months which policymakers will be highly wary of and so may want to push back on the rate cuts priced in by markets for the end of this year.
If so, the dollar should find a bid and stocks pare their recent healthy year-to-date gains.
Euro may see further gains on still-hawkish ECB
The ECB is expected to remain hawkish with core inflation still very elevated and looking sticky.
With rate expectations beyond mid-2024 nearly as low as before the December meeting, President Lagarde is seen talking up rates.
Another 50bp rate hike at its next meeting in March could then get sealed which may see the euro print new cycle highs.
More GBPUSD upside requires BOE to stay hawkish
The Bank of England is in a slightly different spot to the other two central banks.
Although the BOE shares the same tight job market issues with the US, its very high inflation concerns are more like the eurozone.
Updated forecasts from the MPC should show a milder recession but lower inflation. Guidance is likely to be quite soft with the vote split leaning increasingly to the dovish side.
GBP/USD has held up relatively well in recent weeks but is struggling to break the mid-1.24s, where resides the 61.8% Fibonacci level from its 2022 peak to trough.
This key technical level is also acting as immediate resistance for the currency pair known as “cable”, perhaps awaiting fresh policy clues out of the BOE this week for its next big move.
Investors hope that peak concerns about the banking sector across both sides of the Atlantic are behind them.
29 March 11:25
With the big central bank meetings out of the way, this week brings with it the latest CPI data from the eurozone and focus on the Fed’s favoured inflation measure.
27 March 11:59
The dollar traded mixed against it peers in a narrow range yesterday and ahead of the pivotal FOMC rate decision later today. Investors have appeared a little more confident after the sharp selloff in risky assets early on Monday morning.
22 March 11:52
The European Central Bank is set to announce its rate decision at 13:15 GMT today (Thursday, March 16th). In short, EURUSD is perhaps likelier to react to market sentiment, rather than the fundamental actions of the ECB today.
16 March 11:14
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