UK: Weekly FX Market Update 30 January

GBP

• The Bank of England (BoE) sets interest rates this Thursday. Bloomberg gives a 70% probability of a 0.5% rate hike.

• UK data released last week showed increasing Public Sector Borrowing, car manufacturing at its lowest in 66 years and weak Services PMI

• Money markets priced in a 0.25% rate cut by the BoE in Q3 2023

With all eyes on the central banks this week, will the BoE hike rates by 0.50% or 0.25%? Will the recent housing data have an impact on the decision making? Could any hike also be accompanied by dovish commentary?

If GBPUSD can’t gain ground above 1.2450 - technical resistance - will the rally from the 1.0360 September low be over? Could GBPUSD subsequently start to trend lower again?

With the ECB continuing to state that 0.5% rate hikes are expected at the next two meetings, could GBPEUR finally move out of recent trading ranges?

EUR

• ECB President Lagarde insists she will ‘stay the course’ on interest rates.

• The European Central Bank (ECB) sets interest rates this week. Bloomberg gives a 95% probability of a 0.5% rate hike on Thursday.

Will the ECB be as good as their word and hike interest rates by 0.5% on Thursday, whilst maintaining that another 0.5% rate hike can be expected in March?

German IFO President Fuest said that ‘companies are telling us that they are optimistic regarding the next six months, and that suggests overall we will avoid a technical recession’. If this is the case, can EURUSD take another step higher above the psychologically important 1.1000 level?

USD

• The Federal Reserve also sets interest rates this Wednesday. Bloomberg gives a 95% probability of a 0.25% rate hike.

• The week ends with the release of US Non-Farm Payrolls on Friday. The Fed points to a consistently tight labour market as reason for rate hikes.

US interest rates are currently 4.5%, with Bloomberg suggests a terminal rate of 4.9%. Are we nearing the end of this US rate hiking cycle?

Will Friday’s employment data support the Fed taking their foot off the rate hike accelerator?

Events for the weekend ahead:

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