A Week in the Market: Crucial Period for the USD (30 January - 3 February)
30.01.2023
3 min
Three interest rate decisions – from the Fed, ECB, and Bank of England – will be in the spotlight this week. On Friday, US employment reports are bound to significantly increase volatility.
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
The markets have most likely already accounted for a 25 basis point Fed rate hike. The regulator's decision will be known on Wednesday, although 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 expected for release on Friday could stop the collapsing USD.
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's worth noting that the statistics for December 2022 indicated a sharp decline in the rate of production. January's reading is forecast to exceed last year's results, signalling an upturn in the country's industrial sector.
EUR: ECB supports the euro
On Thursday, the ECB will decide on the interest rate, with expectations of this event strongly supporting the euro lately. The market is now already 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 this 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 in the same way in February.
GBP: rate hike expected
There is a view that the UK economy is not in good shape, with growing recession risks. The Bank of England will be forced to raise interest rates at its Thursday meeting, even when economic data leaves much to be desired. Market participants are pricing in a rate hike of 50 basis points at once. With GBP/USD testing a strong resistance area for more than a week, such a decision could give short-term support to the pound.
