FX Week Ahead: FOMC and BoE in focus

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April BoC meeting

The week ahead is somewhat quiet on the economic front, but the FOMC meeting that is due this Wednesday will dominate the news wires. Heading into the meeting, the market expectations are high that the Federal Reserve will hike interest rates by 25 basis points at this week’s meeting. This would mark the first rate hike for this year. Simultaneously, investors will also be looking to the Fed’s dot plot which could signal an additional rate hike this year.

Besides the FOMC meeting, the Bank of England will also be meeting this week. The BoE meeting comes later following the monthly labor market data. With the current Brexit uncertainty alongside the fact that some companies are preparing to move business overseas could potentially impact the jobs numbers.

After the FOMC and BoE in focus we move to the RBNZ, which is also scheduled to meet this week. The central bank meeting is unlikely to move the markets much. The central bank had already signaled that interest rates will remain at the current levels for the foreseeable future and with inflation staying week, there are no grounds for the RBNZ to tweak its language or the overnight cash rate.

Here’s a quick recap of the key economic events due this week.

Markets brace for a rate hike from the Fed

The Federal Reserve will be holding its monetary policy meeting this week on Wednesday. According to the Fed funds futures markets, the markets have priced in a rate hike of 25 basis points which brings the effective rate to 1.50% – 1.75%.

This week’s FOMC meeting will also be the first that will be chaired by the newly appointed governor, Jerome Powell. Powell, not a new comer to the Fed and was already part of the FOMC under Yellen’s leadership is expected to maintain a steady course.

This was evident from the fact that Powell sounded optimistic when giving his testimony to the U.S. Congress few weeks ago. The uptick in the U.S. economy was seen as a positive for the Fed which is expected to stick to three rate hikes until now. While some market watchers have been speculating that the Fed could pencil in a fourth rate hike this year, the recent payrolls report suggested that the U.S. economy was not close to overheating.

This is expected to see the Federal Reserve officials easing the tightening pedal and could stick with three rate hikes this year. The FOMC meeting will also be followed by the release of the economic projections as well as the Fed’s dot plot that could offer updated views on the FOMC members’ projections on interest rates this year.

The Fed Governor, Powell will also be holding a press conference after the release of the monetary policy decision. The press conference is expected to show the views of the newly appointed head of the Federal Reserve. With inflation still a far shot away from the Fed’s 2% inflation target rate, officials are expected to balance the tone of the statement.

Busy week for the UK – Inflation, Jobs and BoE Meeting

A busy week for the UK is marked by the release of the inflation figures in the early part of the week followed by the monthly payrolls report which concludes with Thursday’s monetary policy meeting from the Bank of England.

Following the rapid surge in inflation until late last year, recent trends in consumer prices showed signs of easing. This is expected to continue for February as well. Economists polled are forecasting that consumer prices in the UK increased at a pace of 2.8% for February. This marks a slower pace of increase compared to 3.0% registered in January.

On the jobs front, the UK’s unemployment rate is tipped to remain steady at 4.4%.

Thursday’s BoE meeting is expected to see officials remain on the sidelines for the moment. The central bank had previously signaled that interest rates could rise faster than expected. We expect to see a similar statement from the BoE this month.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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