This week sees the Federal Reserve make its decision on monetary policy at 6pm GMT on Wednesday evening, an hour earlier as the clocks have now changed in the US but not yet in the UK. There is expected to be no change in policy, and given the recent strength in US consumer prices, producer prices and labour market figures, the Fed might suggest in its statements that it might leave policy on hold for a little longer than planned. With nothing else really of note due for release from the US, the USD could get a bit of support. But it is a busy week of central bank meetings, so it is not all about the Fed, in my view. 

Ahead of Thursday’s BoE (Bank of England) Monetary Policy Committee meeting, we get UK February consumer prices, producer prices and retail prices data released on Wednesday morning. That could fall sharply from January’s readings across all consumer price and retail price inflation measures, but recent Red Sea issues could slow the pace of producer price deflation. The BoE is not yet ready to support an interest rate cut, but further progress on inflation, and weakness in the UK economy will likely lead to some further acceptance that interest rates are at the right level and the next move is likely a cut, in my opinion.

So what does this mean for the pound? I think that it will be potentially challenged if the BoE does tweak its statement so it is more dovish, or the vote switches so fewer/no members of the MPC (Monetary Policy Committee) are now voting for a rate hike. I also think the data is a challenge to the GBP’s recent strength against the USD and EUR. CPI (Consumer Price Index) inflation figures might undershoot consensus forecasts, with food price inflation expected to drop significantly once again. 

After the Bank of England decision, we get the March GfK (Growth from Knowledge) consumer confidence reading and then the February retail sales figures. Both these might perform worse than expected, indicating that consumers continue to feel the pressure of high inflation and higher interest rates, which have so far superseded the effects of tax reductions seen recently. That could in turn undermine the GBP as we head into the end of the week, in my view.

There are a lot of other central bank decisions due this week. Early Tuesday morning the RBA (Reserve Bank of Australia) is expected to leave policy on hold, but given the surprising strength seen in the Australian economy, there is a building risk that the RBA is one of the last central banks to cut interest rates amongst those major or secondary central banks. 

Meanwhile the BoJ (Bank of Japan) might not be ready to pull the trigger on an interest rate rise (to take official interest rates back to zero), and that has weakened the yen all over again. The decision from the BoJ has the potential to create volatility in FX, whatever the BoJ decide. In the remainder of the week, the People’s Bank of China, Bank Indonesia and Czech Republic central bank are all set to announce ahead of the Fed, but only the Czech interest rate looks likely to move, with a cut of 50 basis points expected by markets. 

Later in the week, the Banco Central do Brasil is also expected to cut 50 basis points. The Swiss National Bank, Norges Bank (Norway) and central bank of Turkey are all predicted to leave interest rates on hold, whilst Banxico (Mexico) and the Colombian central bank are expected to cut interest rates by 25 and 50 basis points respectively. Lots of risks regarding emerging market currencies with the potential of a few surprises from the central banks set to announce, in my view.