A doomsday week for the FX market. What will the week bring?

Last week's rate hike EBC was probably the last in this cycle of tightening the monetary policy of the euro zone. The coming days will bring decisions by subsequent central banks - the level of interest rates will be determined by, among others, Fed, BoE or BoJ. What to expect from these decisions and how will they affect the FX market?

What will central banks decide?

In the commentary after the ECB's decision, it was noted that interest rates in the euro area had reached a level which, if maintained for a sufficiently long period, would significantly contribute to a decline in the level of inflation on the Old Continent. The small chances for further moves by the ECB result primarily from updated CPI inflation forecasts, which indicate a slight increase in the index in the coming quarters. So what to expect from the Fed?

The decision to leave interest rates unchanged seems almost certain. Money market data puts only a 0,8% chance of a 25 basis point hike. Powell's comments themselves and the new dot-plot will prove to be crucial, as they may significantly modify market expectations regarding future FOMC decisions.

Meanwhile, in the UK, core inflation remains near its highest levels in 20 years. High inflation, higher wages, no recession and the prospect of economic recovery mean that the BoE may decide to increase interest rates. Currently, the market is pricing in almost an 84% chance of such a scenario, and the target forward rate is just above 5,5%. Financial institutions suggest that despite the increase, GBPUSD may continue to decline and pass the test around 1,20.

In today's webinar:

• The ECB ends the cycle of increases
• What will the Fed do?
• Will the BoE raise interest rates?

About the host

Dr Przemysław Kwiecień - Chief economist X-Trade Brokers. Doctor of Economics at the University of Warsaw, graduate of the University of Warsaw and London Metropolitan University (MSc). Holder of the prestigious CFA certificate. He has been working for XTB since 2007, previously he gained experience as an advisor to the Minister of Finance, Mirosław Gronicki, and an economist at Bank Millennium. At XTB, he manages the Analysis Department.

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