The US Fed, UK’s BOE and EU’s ECB are all meeting in the first two days of the month, meaning two things:
– We will almost definitely see another round of interest rate rises for the US, UK and EU
– We will almost definitely see increased volatility in FX and other global markets this week, compared to January, which means increased FX risk to businesses.
Potential shocks to the market, which always move the market the most, could come from the US Federal Reserve if they raise interest rates by more than 0.25%, or from the Bank of England and/or European Central Bank if they go higher/lower than the 0.50% hike expected change. The probability of that is low, according to Bloomberg’s survey, but certainly not impossible!
A simple but useful reminder for many: Higher interest rates (than expected) = A stronger currency! (generally speaking)
This is due to the fact that a higher interest rate = a higher return on investment.
For example, if the US Federal Reserve increase interest rates by 0.50% against the expectation of a 0.25% hike, the US Dollar should strengthen against other currencies. So GBP/USD and EUR/USD should drop lower, in theory.
The remainder of the month has the usual data releases. Most notably, the UK GDP figure on Friday 10th Feb will be particularly interesting to see how far down the slippery slope into recession we are. Additionally, I think with all the news focused on strikes and potential pay deals in the coming days and weeks, the wage inflation data on Thursday 14th Feb will be very closely watched and will move markets.
You can read our latest hot topic of managing your foreign exchange requirements with China.
China: Managing your foreign exchange requirements | Moneycorp