Foreign Exchange Market Update: Impact of Central Bank Decisions

30/01/23 - 03/02/2023

Key Points

• BoE Interest rate decision 
• ECB Interest rate decision
• Fed Interest rate decision 

 
GBP

Last week we had the CIPS Services PMI released, this saw a result lower than expected showing contraction, this saw the Pound drop 1% against the USD and 0.5% against the EUR, from there the Pound rose back to close out the week with very little change from the start. We also saw more political uncertainty in Government this weekend where Nadhim Zahawi has been sacked from Government. Labour are now polling lose to 50% of all votes which does signal a change of government within 2 years. This week a lot of volatility is expected as we have the interest rate decision from the BoE on Thursday. Another rate hike of 0.5% is expected as inflation levels have not dropped to the levels that the BoE were hoping for. Should we see a rate hike at that level or higher than this could be seen as bullish for the Pound, but should we see a hike under 5% then this can be seen as negative for GBP quotes. 

EUR

Overall, the EUR saw small drops against the Pound and Dollar last week, even with the S&P Global Composite PMI came back showing signs of growth. This week is a big week for the EUR to continue its strong performance this year with GDP, .Retail Sales and HICP data coming in Germany this week, as the eurozone’s biggest economy, this will give us a good idea of the eurozone’s individual performances. We also have GDP data and the HICP data released for the whole of the eurozone. These are very important because they are being released before the ECB’s interest rate decision on Thursday, these figures will heavily influence the ECB and whether they decide to raise the interest rate or not. A lot of volatility is expected with the EUR this week as we could see big swings either for or against the Euro. 

USD

GDP figures last week showed a small decline, but this was still a much better result for the USD than expected. We also had the Durable goods orders that showed a bigger growth than expected. This week we have the Federal Reserve’s Interest rate decision being released, this decision is expected to be a small hike of 0.25% from 4.5% to 4.75%, if we see a hike higher than this than this could be seen as positive for the Pound, but if the small hike or even lower is going ahead than this could be seen as bearish for the Dollar. We also have Nonfarm payrolls being released at the end of this week, if the figures beat consensus, then this is seen as positive for the USD but if they fall under then this is seen as negative.