This Week: GBPUSD tests 21-SMA ahead of BoE rate decision & commentary

The Pound is the sole gainer among G10 currencies against the US dollar so far in 2024.

However, that could all change this week, with Bloomberg’s FX model showing a 73% chance that GBPUSD will trade between 1.2600 and 1.2900 in a week that features key central bank meetings.

GBPUSD traders will be looking to capitalise on any difference between the timings of the Federal Reserve’s and the Bank of England’s respective rate cuts expected in the months ahead.

The weaker currency this week should belong to the central bank that’s likelier to lower its interest rates first.

Events Watchlist:
 

• Wednesday, January 31: FOMC rate decision

To be clear, the Federal Reserve is roundly expected to leave its benchmark rates untouched at this week’s meeting. Instead, markets are according a 50-50 chance of a Fed rate cut in March. GBPUSD could surge past the late-December peak of 1.28278 if Fed Chair Jerome Powell fails to push back on rate cut expectations.
 

• Thursday, February 1st: Bank of England (BOE) rate decision

Similar to the Fed, the BOE is highly unlikely to adjust its bank rate this week. However, markets are warming up to the idea that the BOE’s policy pivot could commence in May 2024. Noting that UK inflation has softened considerably in recent months, GBPUSD may trade back closer to the 50-day SMA if the BOE sounds dovish.
 

• Friday, February 2nd: US January nonfarm payrolls (NFP)

Economists forecast that the US labour market added 185,000 new jobs in January, lower than December’s red-hot 216,000 figure.

Note that the headline NFP number had mostly surprised to the upside in recent months.

A lower-than-expected NFP print, along with a higher-than-3.7% US unemployment rate may ramp up bets that the Fed will lower its rates as soon as March.

Such bets should further weaken the dollar, while potentially boosting GBPUSD higher, depending on what the Fed and BOE had previously signalled earlier in the week.



Here’s a comprehensive list of other key economic data and events due this week:

Monday, January 29

• NZD: New Zealand December trade
   

Tuesday, January 30

• JPY: Japan December jobless rate
   
• AUD: Australia retail sales
   
• EUR: Eurozone 4Q GDP
   
• USD: US January consumer confidence
   
• UT100 index: Microsoft, Alphabet earnings
   

Wednesday, January 31

• JPY: Japan December retail sales and industrial production
   
• AUD: Australia 4Q CPI
   
• CNH: China January PMIs
   
• EUR: Germany January CPI
   
• CAD: Canada November GDP
   
• USD: FOMC decision; US Treasury quarterly refunding
   

Thursday, February 1

• CNH: China January manufacturing PMI
   
• EUR: Eurozone January CPI; December unemployment rate
   
• GBP: Bank of England rate decision
   
• USD: US weekly initial jobless claims; January ISM manufacturing
   
• NQ100_m: Earnings by Apple, Amazon, Meta
   

Friday, January 26

• USD: US January nonfarm payrolls