News & Analysis

A Busy Thursday Ahead – Euro and Sterling in the Limelight

September 13, 2018

By ​Deepta Bolaky

 

 

In the upcoming session, we have a slew of data releases on the economic calendar. While trade headlines will likely remain in the forefront of investors’ mind, attention will probably be focused on the following key events:

Bank of England’s interest rate decision & MPC Vote

Brexit news and the retrace of the US dollar have sent the Pound on a rally this week. While the downside risks related to Brexit are not entirely out of the way, there is renewed optimism for the Sterling pairs. The markets expect the interest rate to remain unchanged when the BOE announce its decision today. However, any change in the votes might cause a significant move for the local currency. My colleague, @klavsvalters provided a more details analysis and a preview of the BOE’s rate decision.

ECB interest rate decision & Monetary Policy Statement

ECB is likely going to keep the same interest rate. What will make the statement interesting will be if the ECB provide any comments that could paint a downgrade or upgrade of the inflation forecasts.

By keeping interest rate unchanged, both central banks are exposed to a hawkish Fed. At the same time, it is essential to highlight the differences in the performance of both economies compared to the US.

There is no doubt that the US economy is supporting the rate hikes. Fundamentals in the US are way stronger than the Eurozone which makes the Euro more vulnerable to the divergence in policy. Soft EZ data could even force the ECB to lower its growth forecasts. In the UK, there are improvements in some inflationary sectors which are promising unlike in the Eurozone area. Unfortunately, the Brexit risks are shadowing the interest rate outlook.

US Inflation

The fact that the US CPI figures will be released today will likely cloud any trading reactions after the central banks’ decisions. CPI figures will help traders to gauge how much inflationary pressure is there on the Fed to hike interest rate.

All in all, it will be interesting to see how the markets react to the consecutive releases of these data. Brace for Volatility!!!

This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions. Trading Forex and Derivatives carries a high level of risk.