Key Points
- Interest rate decisions from the US, UK and EU due this week.
- Non-Farm Employment change expecting a weaker figure compared to last month.
- GBP/USD trading above short and medium term averages.
Market Update
GBP
Sterling had a rather uninspiring week last week, with the bulls again failing to force price, with a combination of a lack of data and nerves ahead of this week’s packed calendar both contributing to the relatively low level of volatility seen.
Nevertheless, from a technical angle, it is worth noting that cable continues to trade above all key short- and medium-term moving averages on the daily chart, while having also closed above the 50-week moving average for 2 weeks running, the first time such a milestone has been seen since summer 2021, giving the bulls the upper hand.
Looking ahead, Thursday’s Bank of England decision may stop sterling bulls in their tracks; though a 50bps hike is expected, it seems likely that the MPC will again be bitterly divided, with a dovish surprise distinctly possible as the Bank nears the end of its tightening cycle.
EUR
The euro also had a relatively quiet week last week, briefly touching 7-month highs, before gains faded as the week progressed, albeit ending the week in the green for the third in a row.
This week, however, should be considerably more volatile. Thursday’s ECB decision highlights proceedings, with markets fully pricing another 50bps hike, while also expecting a reiteration of the Governing Council’s hawkish guidance that a further hike of the same magnitude will be delivered in March, again marking the ECB out as one of the most determined hikers in G10.
Before that, Wednesday will bring the latest inflation figures from across the bloc, with headline CPI set to continue rolling over amid falling energy prices, while core inflation will remain close to a record high as price pressures broaden across the services sector.
USD
As noted, the dollar traded modestly softer against a basket of peers for the third successive week last week, struggling to make significant headway with many market participants sitting on their hands ahead of this week’s Fed decision.
Wednesday should see the FOMC further downshift the pace of rate hikes to a 25bps increase, a move fully priced by money markets. Consequently, attention will fall on signalling surrounding the future rate path, both how many further rate hikes are likely this cycle, in addition to how long the Fed plan to leave rates at their terminal level.
Looking further ahead, Friday sees the latest US labour market figures drop, with January set to see another solid month of payrolls gains, in addition to unemployment holding near cycle lows, despite news of layoffs – especially in the tech sector – continuing to worsen.
World News
Ukraine have called for faster weapon supplies to help them overcome Russian invasion. President Zelenskiy states his country needs around 300-500 more tanks. Poland have agreed to send 60 tanks, alongside Germany, UK, US and Italy, who have also offered to support Ukraine and send military supplies.
Central banks are expected to raise interest rates to a 15 year high this week, it is feared that this decision will slow global growth as the battle against high inflation continues. Anxiety is growing amongst investors who fear the effects of another interest rate hike.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Tuesday 31st January | US | CB Consumer Confidence | 108.3 | 109.2 |
| Wednesday 1st February | US | Federal Funds Rate | 4.50% | 4.75% |
| Thursday 2nd February | UK | MPC Interest Rate Decision | 3.50% | 4.00% |
| Thursday 2nd February | EU | EU Main Refinancing Rate | 2.50% | 3.00% |
| Friday 3rd February | US | Non-Farm Employment Change | 223K | 193K |
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7765.15 | 7765.15 |
| DAX | 15150.03 | 15070.3 |
| CAC40 | 7097.21 | 7054.24 |
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