Talking Points:
- The British Pound appears to be well-positioned to continue its streak of gains versus the Euro[1] and the US Dollar, between the February UK CPI release on Tuesday and the BOE policy meeting on Thursday.
- While the FOMC[2] may upgrade its dot plot and projected path of interest rates (the “glide path”), questions remain over whether or not that will instill enough confidence in traders to rekindle USD-long positions.
- Retail trader positioning[3] remains mixed as measures of volatility continue to stay elevated.
Join me on Mondays at 7:30 EST/12:30 GMT[4] for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.
03/20 Tuesday | 09:30 GMT | GBP[5] Consumer Price Index (FEB)
Consensus forecasts, according to Bloomberg News, are calling to see inflation having increased by +0.5% from -0.5% (m/m) and +2.8% from +3.0% (y/y). Likewise, Core CPI is expected to dip to +2.5% from +2.7% (y/y).Unlike inflation reports in previous months, the upcoming data release doesn’t hold much importance for the Bank of England in the near-term. After all, the coming meeting is one without a Quarterly Inflation Report, which has been the typical precursor to seeing any policy change made. With that said, given that inflation will remain at high levels as real disposable income remains under pressure, the Tuesday report should give plenty of room for the BOE to signal its willingness to raises rates again soon; overnight index swaps are currently pricing in a 70% chance of a 25-bps hike by May.
Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD[6][7][8]
03/21 Wednesday | 18:00 GMT | USD[9] Federal Reserve Rate Decision and Press Conference
The Federal Reserve’s March policy meetingwill bring a 25-bps rate hike with it, although that much information is already priced-in to rates: Fed funds are implying a 100% chance of a hike. Given that it is a meeting with a press conference and a new Summary of Economic Projections (SEP) meeting, and that it is Chair Jerome Powell’s first press conference, there is a significant risk of higher than usual volatility for the coming FOMC meeting. Even as economic data indicators have suggested growth and inflation should outperform the FOMC’s 2018 forecasts, there still appears to be a high burden of proof in order for market participants to rekindle their affection towards the US Dollar. Even as three and a potential fourth rate hike have come into focus for 2018, the US Dollar remains one of the worst performing major currencies of
