BoC raises rates

GBP

Bailey's speech and services in focus

The Pound has put in a mixed performance in 2022 so far—while it's made some headway against Scandinavian currencies and the Japanese Yen, it's been unable to make considerable gains versus the US Dollar given the Buck's safe-haven status and the Federal Reserve's forecasted aggressive rate hike cycle. Meanwhile, commodity currencies such as the Australian and New Zealand Dollars have also been supported by commodity price increases, putting pressure on the GBP/AUD and GBP/NZD pairings.

The UK recently reported the highest levels of inflation since 1992, while consumer spending is presenting 10% lower than pre-pandemic levels, and footfall to entertainment venues has also taken a hit as growth slows amid rapidly rising prices. These growth concerns could be a headache for the Bank of England, as it tries to manage not just interest rates and inflation, but also market expectations for rate hikes, which have been largely priced into the Pound's value. In the week ahead, BoE representative Catherine Mann is due to speak, as well as Governor Andrew Bailey. Any comments from Bailey around interest rates and monetary policy could prove pivotal for Pound value during this week's trading. UK Retail Sales will also come to light, and are forecast to print at -0.3% in March on the month, the same as February. Manufacturing and services data could also influence the Pound in the week ahead—particularly the services reading, given that this sector makes up so much of the UK's growth.

EUR

Playing catch up

Year to date, the Euro has slipped by more than 5.0% against the US Dollar and has been trading close to two-year lows, at levels seen when the Covid pandemic began. With other central banks adopting a more aggressive approach to monetary policy, the European Central Bank is lagging behind in comparison. However, forecasts suggest the ECB will begin to tighten its monetary policy in the third quarter of the year—so Euro gains could be limited until the central bank begins to take action along with other nations. The ongoing crisis in Ukraine and cuts by the World Bank to projected global growth have kept riskier assets under pressure, giving the Euro little opportunity for respite. In the week ahead, the Eurozone's Industrial Production, manufacturing, and services numbers will be released, which could add some influence to the way the Euro trades. Meanwhile, ECB President Christine Lagarde will speak this week; the International Monetary Fund will also publish its economic growth outlook.

USD

Monetary policy divergence

The US Dollar has been on strong footing, claiming 20-year highs versus the Japanese Yen this week. Markets are anticipating a significant monetary policy divergence between the Federal Reserve and the Bank of Japan, which has catalysed the US Dollar's move higher. In the week ahead, Federal Reserve Chairman Jerome Powell will speak at the International Monetary Fund meetings taking place. Additionally, manufacturing and services numbers will also be released and could play a part in US Dollar trading.

AUD and NZD

Inflation and wage data in focus

Overnight, the Reserve Bank of Australia's latest meeting minutes showed that a rate hike cycle might not be far off. The central bank suggested that inflation and wage data will be key to making decisions on the matter. In the week ahead, Australian Retail Sales numbers will be out, as well as manufacturing and services stats. New Zealand data will consist of inflation numbers—expectations suggest consumer prices will rise from 5.9% to 7.1% on the year. Yesterday, the New Zealand Services PMI rose from contraction territory of 48.9 to expansionary territory of 51.6.

CAD

BoC raises rates

Last week, the Bank of Canada decided to hike interest rates from 0.5% to 1.0%, while also announcing the beginning of quantitative tightening. BoC Governor Tiff Macklem spoke in a press conference, saying: 'Canadians should expect the overnight rate to rise toward the bank's assumed 2-3% neutral range', signalling more hikes on the horizon. This week, key Canadian data will consist of inflation numbers that are expected to rise from 5.7% to 6.1% in March on the year. Additionally, Retail Sales stats will also be released, which are expected to lie in contractionary territory at -0.1% in February, following January's 3.2% print.