A Week in the Market: Crucial Period for USD (30 January – 3 February)

A Week in the Market: Crucial Period for USD (30 January - 3 February)

Three interest rate decisions – from the Fed, ECB and Bank of England – will be in the spotlight this week. On Friday, US employment reports will significantly increase volatility.

NZD: employment report

NZD: employment report

The first batch of serious economic news which could trigger market activity will come from New Zealand. The employment rate for the fourth quarter of last year is forecast to rise by a mere 0.7% which is significantly below the previous figure of 1.3%. The unemployment rate for the same period is expected to be around 3.3%.

USD: labour market data and Fed decision

USD: labour market data and Fed decision

Most likely, a 25 basis point Fed rate hike has already been taken into account by the market. The regulator’s decision will be known on Wednesday, but participants do not expect any surprises in this regard. The dollar could therefore remain under pressure as the ECB acts more aggressively. However, a strong report on the number of new jobs in the non-agricultural sector on Friday could stop the collapsing USD.

Statistical data from China

Statistical data from China

The NBS Manufacturing PMI will be presented on Tuesday and the Caixin Manufacturing PMI on Wednesday. Investors will receive an update on the Chinese economic recovery. It is worth noting that data for December 2022 showed a sharp decline in the rate of production. January’s reading is forecast to exceed last year’s results – a sign of an upturn in the country’s industrial sector.

EUR: ECB supports the euro

EUR: ECB supports the euro

On Thursday, the ECB will decide on the interest rate, expectations of this event have been strongly supporting the euro lately. Already now the market is looking at a 50 basis point hike, as Christine Lagarde has repeatedly spoken about the need to act quickly and aggressively. Even a falling inflation rate in Europe would not change that decision. Market participants will also be concentrating on the ECB chief’s press conference: it is important for them to understand whether the regulator is prepared to act similarly in February.

GBP: rate hike expected

GBP: rate hike expected

There is a view that the UK economy is not in good shape and recession risks are only increasing. The Bank of England will still be forced to raise the rate at Thursday’s meeting, even when economic data leaves much to be desired. Market participants are pricing in a rate hike of 50 basis points at once. GBP/USD has been testing a strong resistance area for more than a week, and such a decision could give short-term support to the pound.

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