Attention focused on the Bank of Japan and the European Central Bank

There are many events waiting for us this week. Publication of data such as GDP from the USA, PCE inflation and reports of technology giants from Wall Street such as Netflix, Tesla or Intel. In addition, two key central banks will present decisions on interest rates for the first time this year. These will be the Bank of Japan and the European Central Bank, although in neither case is any change expected. How will this affect the currency market?

You can't count on any surprises

The decision of the Bank of Japan will take place tomorrow morning, before the European session. Although there is no specific time for the decision, it usually takes place around 5-6 a.m. Polish time. However, we should not expect any surprise. Bank of Japan will maintain interest rates and is unlikely to announce the possibility of a pay raise in the near future, which would lead to an exit from negative interest rates.

This is due, among other things, to recent data. Inflation remains above the target, but has dropped significantly from its peaks, which is also the result of a marked decline in the rate of wage growth, which amounted to only 0,2% y/y in December. Of course there is potential for acceleration, due to the January wage negotiations, but it does not seem that the Bank of Japan takes a long-term view of these changes.

The deadline for reductions is getting longer

The second important decision this week is the decision of the European Central Bank. Of course, in this case there is no point in talking about any changes, although in terms of direction it will be downward. The market expects that The ECB may cut rates in April, although the probability of such a move is currently estimated at slightly above 50%, and before the holidays it was close to 100%.

During the Economic Forum in Davos, Christine Lagarde said that the ECB will have all the necessary information by mid-year to decide on a possible cut in the summer. As you can see, the deadline for reductions is starting to get closer.

The same is true of the Fed. Not long ago, March was considered a certainty, but at the moment it seems that in the USA the rates will be cut in May at the earliest. This week we will learn many important publications from the USA, such as PMI, GDP and PCE inflation. If these data show continued strength in the U.S. economy, the chances of a March cut may further decline, which could bring back the dollar's former strength.

In the early afternoon we observe very little volatility on the currency market. In the morning, the zloty was strong, but after the publication of weak data on retail sales and lower wage dynamics, the zloty started to lose. Before 13 p.m. we pay PLN 4,0076 for a dollar, PLN 4,3586 for a euro, PLN 5,0881 for a pound, PLN 4,6097 for a franc.

Source: Currency Commentary, Michał Stajniak CFA, XTB