The first trading month of the year is now history as traders shift focus to a busy week. Among the central bank meetings, the FOMC and the BoE meetings are likely to overshadow the Bank of Japan’s meeting this week. Still, no changes to monetary policy are expected this week from either of the central banks. In the UK, the Brexit bill is likely to top the agenda and could keep the British pound volatile. The week concludes with heavy data from the U.S. culminating with the January jobs report. China is closed for the first part of the week, celebrating the Chinese New Year. Here’s a quick guide to the currency markets for the week ending February 3rd, 2017.
FOMC to keep rates steady
The Federal Reserve will be meeting this week for the first monetary policy of the year. With no press conference scheduled for this week’s meeting, the expectation for a rate hike is low which would see the Fed funds rate remain unchanged at 0.75% after the Fed hiked rates by 25 basis points in December.
Â
Fed funds rate: 0.75%, Dec 2016
Assessing the economic data since the December rate hike, the U.S. economy has been posting steady gains especially with headline consumer inflation up 2.1%. The positive streak of data has led many officials to hold the view that the markets can expect at least two to three rate hikes this year. Friday’s consumer sentiment survey from the University of Michigan showed that data continues to point to inflationary pressures. Expectations on inflation, one year ahead rose to 2.6% in January, up from 2.2% in December, according to the UoM inflation expectations data released on Friday. The data suggests the likelihood that inflation could surge past the Fed’s forecasts which expect inflation to hit 2% in the next year or so.
The next major Fed meeting is in March, and depending on how the U.S. data turns out by then, the Fed could very well prepare the markets this week for another rate hike in March.
