The Federal Reserve of the United States has shifted its tone to a more hawkish one, sending waves of US dollar buying across the world. The Bank of England (BOE)’s Thursday decision is poised to move the British Pound.
After the Federal Reserve of the United States (Fed) took a hawkish turn at its meeting last weel, traders and investors have turned their attention to other central banks. Typically, when the Fed moves, the other central banks follow.
The first ones to react are emerging markets. Because emerging market economies are highly indebted in US dollars, their currencies are the first to react to a shift in the Fed’s policy.
A stronger dollar kills emerging markets’ currencies, and thus the central banks react by hiking the rates immediately to make the currencies attractive to foreign investors. Brazil already hiked the rates shortly after the Fed’s announcement.
How about central banks in the developed economies? The Bank of England’s decision is due this week, and it typically follows closely in the Fed’s footsteps.
Economic Events Traders Must Keep An Eye On This Week
The trading week starts slowly from an economic calendar’s point of view. No important event is scheduled today, with the exception of Christine Lagarde’s testimony in front of the European Parliament Economic and Monetary Affairs Committee. The euro might react, but markets will likely focus on the US dollar as the Fed’s decision still weighs on price action.
Fed’s Powell testifies too, this time on Tuesday and in front of the US House Select Subcommittee on the coronavirus crisis. His words will be closely monitored by market participants as he may offer some more clues about what comes next from the Fed.
Wednesday is the PMI day in the Euro area, the United Kingdom and the United States. Traders will focus on confirmation that the manufacturing and services sectors continue their expansion.
The main event of the trading week is due on Thursday. The Bank of England announces its interest rate decision as well as the asset purchase facility changes, if any. The bank’s monetary policy summary will have a strong impact on the British pound.
Finally, the trading week ends with the Core PCE price index in the United States. The market expects an increase by 0.6% MoM – any upside deviation will trigger increased volatility.