Fed Boe Meetings In Focus This Week

Euro-Zone inflation data also a key release this week..

How MPC members vote at Thursday's BoE interest rate decision, will be watched and judged closely by traders and economists alike this week. A vote of 9-0 to keep rates on hold is likely, but some are suggesting a 7-2 outcome is possible, which would be classed as a policy pivot and therefore initially weaken the Pound.

With a forecast of 100bp being cut this year in the UK, a conversation as to when that might start happening looks inevitable on Thursday, especially if 2 members vote to lower the rate this time round. In December, 3 members still voted for a rate hike, but this almost looks like an impossibility this time and so either way we could see some weakness Thursday afternoon for Sterling.

Before that though, we have the Fed interest rate decision and following press conference which is probably more important. This is because the US are ahead of all major central banks in taming inflation and so are further down the line of cutting interest rates (which will weaken the $).

According to money markets, in December there was a 90% chance of a March rate hike in the US, but this is barely 50% now due to recent strong economic data allowing the Fed to kick the can down the road a bit longer. You never know with central banks and so second guessing what they might say or do is rather pointless. But right now, £-$ is very favourable and it's likely it will remain that way until the summer.

In-between the important central bank rate decisions we have Euro-Zone inflation data which is forecast to fall slightly. Germany is expected to see a larger drop, which may weaken the single currency on release. By the looks of it, all the major currencies are expecting to weaken at some point this week, making it an impossible week to navigate..

By Dan Waterman on January 30, 2024