Busy Week Ahead
We entered the last week of January which is traditionally very busy and this year is no different with a packed economic calendar of key central bank decisions and big data releases.
The Federal Reserve policy meeting on Wednesday will be the highlight in the days ahead and while market participants remain convinced that a dovish pivot is drawing closer, prominent Fed managers warned that expectations around future rate cuts were too optimistic and that the Fed does not intend to cut rates as quickly as the markets expect. With no change in monetary policy and no dot plot release this week, traders will be looking for fresh hints on the timing of the first rate cut by Fed Chair Jerome Powell in his press conference. If Powell leaves the door open to a possible rate cut in the first half of the year, the U.S. dollar could weaken.
Furthermore, the greenback’s direction will also hinge on the latest U.S. jobs numbers which will be release on Friday. The jobs market is forecast to have cooled in January. An upside surprise in the payrolls report would diminish hopes for an early rate cut and the dollar could thus experience a short squeeze.
On Thursday, the Bank of England meets to set its monetary policy. Like the ECB and Fed, the BoE is expected to keep rates unchanged. There are no expectations for any rate cuts soon, but the BoE may make its first dovish tilt in its February meeting, a move that would be negative for the pound.
The overall price development remained very sluggish for traders and even a better-than-expected U.S. Core PCE report from last Friday could not really boost the U.S. dollar. However, the tight ranges are likely to be tested due to an anticipated lift in volatility in the days ahead.
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