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30th January - Weekly FX Update

Top Currency Pairs Monday 30th January 04:00 UTC GBP/USD: 1.23918 (Last Week: 1.24336) EUR/USD: 1.08689 (Last Week: 1.08987) GBP/EUR: 1.14011 (Last Week: 1.14083) Market News

Pound Sterling The Pound lost some ground last week temporarily after weak economic data, but looking ahead it is set to be an extremely busy week in the currency markets as three of the largest central banks hold policy meetings. The Bank of England is expected to hike rates by 50 bps, along with the European Central Bank, which is in contrast to the Federal Reserve who are looking to slow the pace. This would mark the tenth hike since December 2021 for the BoE, as inflation (10.5%) is still more than five times the Bank's official target of 2%. The potential move of interest rates to 4% will be closely watched by the markets to see if policymakers are near the end of their tightening cycle. It is expected that one final hike may be made in March, which would see the Bank Rates peak at 4.25%. Anything short of this should be detrimental for the Pound short-term.

Euro It is a packed week in the Eurozone economic calendar this week. The European Central Bank currently has its Bank Rate set at 2.5%, and on Thursday markets expect a further move to 3%. After multiple ECB members have confirmed that the bank needs to raise rates at this meeting, this has been heavily priced into markets so should the ECB differ from expectations, we will likely see movements either way. Christine Lagarde should also remain hawkish post-decision as core inflation remains high, despite dissent among other policymakers that inflation seems to be retreating. Today will see German GDP figures as well as Retail sales & CPI figures tomorrow, with Eurozone GDP to follow.

U.S. Dollar Ahead of a slew of central bank meetings this week, the Dollar was capped by dovish repricing of the Federal Reserve's rate-hike expectations compared to the European Central Bank and the Bank of England. Markets are expecting a 25 bps increase on Wednesday - one day before its counterparts release their respective monetary policies. Since this has been priced in, investors will be taking a closer look at the Federal Reserve chair, Jerome Powell. Powell is set to speak following the policy meeting, and close attention will be paid to any indication as to whether or not rates will move any higher, and if so, when officials may pause the hiking cycle. Over the past 12 months, the USD has benefitted massively from one of the most aggressive tightening paths in four decades, but now seems to be losing its footing.

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