RedFX Snap: Insights into the mindsets of the Central Bankers
The coming week is dominated by speeches from Central Bankers, interspersed with data releases (which are closely watched for indications of economic health & robustness). Speeches offer the opportunity to gain insights into the mindsets and motivations of the decision-makers, so the markets will be paying attention to every word.
USD News:
Last week, the US Central Bank raised rates by the largest proportion in 30yrs and signalled that it will continue to do so throughout 2022. The expectation of US rates at / around 3.5% by year-end will continue to see the USD being supported. EUR/USD has traded between 1.0380 and 1.0780 in the last month – a 4% range, showing how markets have reacted to ECB and US Fed decisions.
EURO News:
Although the European Central Bank has signalled that it will take action to combat inflation by raising rates, it is in a fight with a very aggressive group of developed nations central banks who will raise rates faster and more aggressively. The ECB also has to factor a war into their decision-making process which will pressure the single-currency relative to its peers. Today’s speech from ECB President Lagarde will give an insight into future moves, but at 1.0500 level, EUR/USD remains near multi-year lows.
As the ECB becomes more hawkish, we might see the EURO fight back, as long as actions follow the rhetoric.
GBP News:
GBP/USD - sitting around 1.2200 today, having pressured the major support level at 1.2000 last week. This morning’s comments by a Junior Treasury Minister that he did not expect a UK recession and that the long-term outlook is “really positive” helped bring GBP up from low levels. All eyes will be on UK inflation and activity data this week – if it remains strong, then the Bank of England will be expected to raise rates by another 0.5% in August.
GBP/EUR has fluctuated between 1.1470 and 1.1730 which is a 2.25% range – lower than most major currency pairs this week, but still enough to present opportunities for buyers and seller, and to reiterate that these are volatile times
AUD News:
A very hawkish central bank now looks to be fighting back and the currency is strengthening on the back of it. Important data and interest rate decisions this week are likely to support AUD, marking a change in rhetoric and tone for the RBA.
Stay on the Lookout for the week ahead:
Monday: EUR ECB President Lagarde speech / GBP UK Bank of England speech
Tuesday: AUD Central Bank speech & interest rate decision / GBP UK Bank of England speech / CAD Retail Sales
Wednesday: GBP Inflation data & Retail Sales data / EUR 2 x ECB speeches & meeting / USD Central Bank Chair speech / CAD Inflation data
Thursday: EUR Leaders summit / EUR German activity data / GBP UK services data / USD Fed Chair testimony
Friday: AUD Central Bank Governor speech / GBP 2 x Bank of England speeches
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The RedFX Team