Businesses await Bank of England and Fed rate announcements this week
15/Mar/2016 • Currency Updates•
Monday proved to be a quiet day in the currency markets ahead of a week that will be dominated by central bank decision making.
The Federal Reserve will, on Wednesday evening, be announcing its latest interest rate decision following its two day monetary policy meeting. We expect rates to remain unchanged, with the market now pricing in just a 25% chance the Fed will move rates by the end of April.
The Fed’s accompanying commentary and economic projections, including the much scrutinised ‘dot plot’ where each member of the FOMC expects rates to be at the end of each year, could be key for the US Dollar this week.
UK businesses should also have one eye on this Thursday’s Bank of England meeting. We don’t expect UK policymakers to rock the boat and rates will almost certainly remain unchanged. Expectations for a dovish statement amid a global economic slowdown could provide some downside risk for Sterling this week.
Among G10 economies, Norway’s central bank, Norges Bank, is widely expected to cut its interest rate by 25 basis points to 0.5% on Thursday morning. The recent oil price slump has proved a significant net negative for Norway, given the country’s dependence on oil production.
The Swiss National Bank will also be announcing its interest rate decision on Thursday, which we expect will remain unchanged at -0.75%.
Among emerging markets, the Egyptian Pound fell over 12%, to 8.95 against the US Dollar, after the Central Bank of Egypt devalued the currency on Monday, as anticipated. Meanwhile, the Brazilian Real plunged following mass protests on Sunday calling for the ousting of President Dilma Rousseff.
Major currencies in detail:
Sterling was little moved on Monday, with the lack of economic announcements leading to a quiet trading session.
The Pound dipped by 0.35% against the US Dollar, declining from its one month high achieved at the back end of last week. With concerns surrounding the EU referendum beginning to recede from the headlines for now, attention will turn to the Bank of England again, which should be the main driver this week.
With no economic data in the UK again today, Sterling could be mostly range bound. Wednesday morning’s labour report looks set to be the only major announcement before this Thursday’s Bank of England meeting. Chancellor George Osborne’s Budget report on Wednesday could receive some attention, although it is generally overlooked by currency traders.
The Euro declined throughout the day on Monday as investors continued to digest last week’s large scale easing measures announced by the European Central Bank. The single currency subsequently ended 0.35% lower versus the US Dollar.
Industrial production data in the Eurozone came in surprisingly strong, alleviating fears of an outright slowdown in the Euro-area economy. Production expanded by a massive 2.8% on an annualised basis, blowing all forecasts out of the water.
This surge reversed declines in November and December and marked its largest monthly rise since September 2009, helped in part by a 12.7% increase in output from Ireland.
Data from the Eurozone is on the light side today, with inflation figures in Italy and France this morning unlikely to impact the Euro. Eurozone-wide inflation data on Thursday will be the main focal point for the week, although is expected to remain unchanged at -0.2% year-on-year.
The US Dollar rebounded somewhat yesterday from its 1% loss in value last week, with the USD index ending 0.3% higher.
The Greenback stabilised as trading opened for the week following the dramatic moves seen last week after the European Central Bank meeting. With no economic data released, the Dollar traded mostly within a narrow band, with investors awaiting significant announcements later in the week.
Focus in the US today will be on the latest retail sales figures for February at 12:30 UK time, which are seen as a good barometer of consumer spending in the US economy. A negative print could weigh on the US Dollar this afternoon and open up the possibility of a slightly more dovish Fed on Thursday.
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