The US and British central banks both have interest rate decisions on Thursday.
GBPUSD – Daily Chart
GBPUSD has traded in a tight triangle formation, and the latest economic data could force a breakout move.
The data starts at 3am HKT with the release of the US Federal Reserve’s interest rate decision. However, traders will have Thursday’s trading day to plan for the UK bank’s release later in the evening.
Analysts expect the Fed to hold rates steady this time, but they are looking for clues as to when the central bank may cut.
Goldman Sachs economist David Mericle wrote last week that he believes four additional rate reductions will follow a March 2024 cut. The central bank is likely to be cautious in its language on January 31 and avoid “sending a decisive signal,” he noted.
David Kelly at JP Morgan said the Fed may “douse hopes of any early easing in policy”.
“This is, in part, because they are genuinely uncertain about how sticky inflation might be in an economy experiencing above-trend economic growth and a still very tight labour market”.
That will be followed by the UK central bank’s decision, where stubborn inflation will likely see them hold. Again, markets will focus on the press conference from the bank’s governor, Andrew Bailey.
Inflation in the UK was unexpectedly higher in December, and the economy is struggling with higher interest rates. Investors will be interested in the timeline for cutting rates. That could have a big say in the direction of the GBPUSD this week. The US economy has been more robust and could stomach higher rates for longer.
On Friday, the US will release its closely watched Non-Farm Payrolls jobs number. Analysts will want to see how the job market is performing, with any weakness in jobs signalling that the Fed should ease the pressure on the economy.
