We’re starting the month busy with not one, not two, but THREE central bank decisions coming up during NFP week.
But before that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the major events that might move the major currencies around in the next couple of days:
Major Economic Events:
RBA’s policy decision (May 3, 4:30 am GMT) – The Reserve Bank of Australia (RBA) surprised AUD bulls last month when it removed the “prepared to be patient” bit from its statement and hinted that it would be more open to raising rates sooner than members initially planned.
With inflation hitting its highest levels since the early 2000s and unemployment chillin’ at record lows, markets see RBA raising its rates by 25 basis points this week.
Traders will also look for forward guidance to get clues on RBA’s tightening schedule and trajectory for the rest of the year.
FOMC statement (May 4, 6:00 pm GMT) – After weeks of hyping, markets widely expect the Fed to raise its interest rates by 50 basis points to around 1.00% for the month of May.
Eyes will also be on the Fed’s $9 trillion asset portfolio, which members have signaled they want to shrink by $95 billion a month in the March meeting minutes.
This week’s moves are likely priced in, so the volatility may come when Powell sheds light on the speed and trajectory of the Fed’s interest rate hikes and portfolio shrinking activities for the rest of the year.
BOE’s policy decision (May 5, 11:00 am GMT) – As expected, the Bank of England (BOE) raised its interest rates by 25 basis points to a pre-COVID rate of 0.75% in March.
This week, traders expect BOE to raise its rates for a fourth consecutive time to 1.00%. Members will likely turn less hawkish, though, with at least one rate hike dissenter and other members expressing concerns over high inflation, the Russia-Ukraine war, and global economic growth.
U.S. NFP reports (May 6, 12:30 pm GMT) – Uncle Sam’s labor market tightened further in March with a net of 431K jobs added while the unemployment rate dipped from 3.8% to 3.6%.
Markets expect a continuation of the hiring momentum with 380K – 415K jobs added in April while average hourly earnings edge higher from 0.4% to 0.5% and the unemployment rate remains at 3.6%.
Forex Setup of the Week: GBP/USD
The Fed and BOE’s events got me looking at GBP/USD this week!
As you can see, Cable has fallen sharply in the second half of April after breaking a weeks-long consolidation above the 1.3000 psychological area.GBP/USD has found some support, however, and is now hanging out at the 1.2600 zone near the 100 SMA and Fibonacci retracement levels on the 1-hour chart.
Can the bulls maintain a bullish momentum? Or will USD bulls and GBP bears soon extend GBP/USD’s downtrend?
The Fed’s expected 50-basis point rate hike as well as its plans to tighten its balance sheet could deal the first blow to GBP/USD’s pullback. The pair could dip to its April lows before we could even say “pips!”
BOE’s event probably won’t help, either. Not only is the 25-basis point rate hike already expected, but members will likely highlight their concerns over high inflation and its impact on consumer spending and the U.K.’s growth.
Unless we see a buy-the-rumor, sell-the-news situation, or we see surprises from the Fed and/or BOE, then the odds favor more losses for GBP/USD. Yikes!