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The strongest factors influencing the direction and momentum of the FX rate are major macroeconomic indicators, chief among them the changes in the key interest rates. Higher interest rates make the currency more attractive and lead to a stronger Pound.
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 all FX traders.
In the US, key interest rate decision-making body is the Fed’s Federal Open Market Committee (FOMC), while in the Eurozone it is the ECB’s 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
Main GBP driver this week will be the new round of Brexit negotiations, scheduled for Wednesday, 2 May. Working group headed by ECB President Mario Draghi and BoE Chairman Mark Carney will be working on a roadmap to reduce financial market turmoil in case of a so-called “hard Brexit” breakdown in talks.
Local UK elections, scheduled for Thursday, 3 May, could have an implication for the Pound by strengthening or weakening support for PM Theresa May’s Brexit policy.
UK Services PMI data released on Thursday, 3 May will give an indication if disappointing GDP growth reported last week was weather-related, or if the slowdown has deeper implications for UK economy (which would put further pressure on GBP).
EUR
Key Eurozone data this week will come on Thursday, 3 May at 10:00 when Eurozone inflation data is released.
Inflation data is one of the key factors ECB will use to determine if a change in policy (a hike from current negative rates) is warranted.
Current economist projections do not foresee ECB changing policy until 2020, but weaker than expected inflation number could change those expectations, putting pressure on the EUR.
USD
Major event to anticipate is the Fed’s key interest rate policy decision on Wednesday, 2 May at 19:00.
No change in policy is expected in May.
Economists expect (92.5% probability) rate hike to be implemented during June meeting (Source: Bloomberg, see table above).
Press conference is not scheduled and investors will pay close attention to specific language on inflation to understand chance of future rate hikes.
Other important events this week include release of US Non-Farm Payrolls on Friday, 4 May at 13:30.
Average hourly earnings are expected to rise 0.2% MoM in April, while jobs growth is expected to slow (likely due to poor weather) (Source: FT).
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09:30 Consumer Credit, PMI Manufacturing (UK)
15:00 ISM Manufacturing (US)
21:30 API Oil Inventories (US)
00:00 BRC Shop Prices (UK)
01:30 PMI Servcies (Japan)
02:45 Caixin PMI Manufacturing (China)
8-9am PMI Manufacturing (Eurozone)
10:00 GDP (Eurozone)
19:00 Fed Interest Rate decision (US)
09:30 PMI Services (UK)
10:00 Inflation (Eurozone)
14:45 PMI Services (US)
15:00 ISM Non-Manufacturing (US)
02:45 Caixin PMI Services (China)
8-9am: PMI Services (Eurozone)
10:00 Retail Sales (Eurozone)
13:30 Non-Farm Payrolls (US)
Technicals
Technicals
Technicals
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