Central banks dominate markets as the Fed lifts rates by 0.25% and the BoE & ECB are set to make rate decisions today.
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February 2, 2023
GBP/USD 1.2336 GBP/EUR 1.1223 EUR/USD 1.0993 USD/CAD 1.3286 EUR/CHF 0.9992 EUR/SEK 11.3516 EUR/NOK 10.9363 EUR/DKK 7.4394 USD/ILS 3.4202 AUD/USD 0.7129 NZD/USD 0.6520 USD/SGD 1.3063 USD/JPY 128.88 USD/CNH 6.7284 USD/INR 82.2308 EUR/ILS 3.7597 GBP/ILS 4.2192 USD/ZAR 17.0751
A big upgrade of GDP forecasts and a slew of evidence is likely going to push the BoE’s MPC to raise rates by 0.5% to kick off 2023. Markets are currently pricing in an 80% chance of a 0.5% hike with the vote MPC likely to be split. With the risk tilted towards a dovish shift, if the MPC opts for a 0.25% hike this could result in a GBPUSD selloff the extent of which may be determine by the forward guidance offered by Governor Bailey.
As strikes continue to embed as part of everyday life in the UK, the downside risk associated with sustained industrial action continues to mount. Strikes may have created a drag on the economy in Q4 2022 of roughly 0.2% of GDP, with the cost of workers downing tools at £1.5 billion.EUR
EURUSD has finally broke through the 1.1000 level to trade at 9-month highs, following the US Federal Reserve’s monetary policy decision and a flurry of strong European data. The ECB will be pleased that Inflation printed at 8.5% for January, below the 9% forecasts. Core inflation however proved stickier, unchanged at 5.2%, boosting recent rhetoric that core inflationary pressures remain. Unemployment also remained unchanged at 6.6%, failing to beat expectations for a slight improvement.
Following last night’s interest rate decision in the US, focus will shift over the pond to Christine Lagarde. Markets have priced in the likelihood for a 50bp hike this afternoon, but the main game changer could be the statement following and any indications of the future direction of interest rates in the Euro Area.USD
The FOMC moved as expected in their first meeting of 2023, opting to slow the pace of rate hikes to 0.25%, however committee member reiterated their hawkish rhetoric with a statement which hinted at their combined resolve to raise rates above 5%. FOMC member will likely need to see more convincing signs of disinflation particularly in the labour market.
In contrast to the statement, economists classified the statement as having dovish undertones, as Powell was decisively more upbeat on the economic outlook and the Fed’s grip on inflation. Consequently, the dollar slipped away, and US equities traded higher.ASIA/PACIFIC
Hong Kong’s economy struggled again in the last quarter of 2023 however the city may be set for a rebound. Hong Kong GDP shrank 3.5% in 2022, the third contraction in four years.ILS
Following the Fed’s decision to raise rates, the Bank of Israel faces a complex decision on Feb 20th. The BoI has broadly followed the Fed’s lead for the past three-years however political developments have greatly increased the uncertainty facing the Israeli economy.Data & Events
BoE Rate Decision + Statement
ECB Rate Decision + Statement
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