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The strongest factors influencing the direction and momentum of the FX rate are major macroeconomic indicators, chief among them changes in the key interest rates. Higher interest rates tend to make the currency more attractive, increasing demand and strengthening it.
In the UK, interest rate policy is determined by the Bank of England’s (BoE) Monetary Policy Committee (MPC), which meets several times a year and whose decisions are closely watched by FX traders and financial markets.
In the US, key interest rate decision-making body is the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC), while in the Eurozone it is the European Central Bank (ECB) and its Governing Council.
Other key factors influencing FX rates are macroeconomic data on inflation, economic growth and wages.
The following events this week could have a major impact on FX markets.
GBP
Brexit talks may remain the key driver for the Pound this week, PM Theresa May continuing to struggle with cabinet infighting, key ministers still split over the potential for a “customs partnership” with EU.
UK unemployment and other labour market data (Tuesday, May 15) could also have major influence on GBP this week.
EUR
The biggest EUR impact this week will likely come from the political sphere, as EU continues negotiations with UK over Brexit, as well as continuing the simmering rule-of-law disputes with Poland and Hungary.
Formation of the new Italian government could have the most outsize influence, as political parties are still wrangling over formation of a cabinet and the name of Prime Minister. The deal looks likely to be struck this week, as negotiations have shown progress over weekend.
USD
Key USD influencer this week will be the US Retail Sales data on Tuesday, May 15, as well US Housing Starts/Permits on Wednesday, May 16. Both are important leading indicators for the state of US economy and could provide a boost to USD, which has sagged recently on market uncertainty about the number and timing for further Fed interest rate hikes later in the year.
With multiple Fed speakers scheduled for the week, we may see some clarification regarding interest rate policy, which could provide extra push to the Dollar against both the Sterling and the Euro.
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03:00 Retail Sales, Industrial Production (China)
07:00 GDP (Germany)
09:30 Jobless Claims, Weekly Earnings (UK)
10:00 Ind. Prod., GDP (E/zone), ZEW Surveys (Germany)
13:30 Retail Sales, Business Inventories (US)
21:30 API Oil Inventories (US)
02:30 New Home Prices (China)
07:00 Inflation (Germany)
10:00 Inflation (E/zone)
13:30 Housing Starts/Permits (US)
15:30 DoE Oil Inventories (US)
13:30 US Philly Fed Report
07:00 PPI (Germany)
Technicals
Technicals
Technicals
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