Forex Weekly Outlook: Fed, BoE stay dovish, Powell testimony next

Central banks were in the spotlight last week, with the Fed and BoE sending dovish messages to the market. Fed Chair Powell be under scrutiny as he testifies before Congress, and the UK releases key consumer inflation and spending reports.

The Bank of England, which made no changes to interest rates or QE, with unanimous decisions. In its Monetary Summary, members stated that inflation expectations were “well anchored”, but added that the bank stood ready to intervene if inflation faltered. As well, the bank stated that it would not tighten monetary policy “until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”. Public Sector Net Borrowing jumped to GBP 18.4 billion, up from GBP 8.0 billion beforehand.

The FOMC policy meeting was generally dovish, with policymakers reiterating that the Fed had no plans to raise interest rates before 2023. Still, the growth forecast was upbeat, as the US recovery shows signs of gathering steam.

Eurozone headline inflation came in at 1.1% and the core reading at 0.9%, confirming the initial estimate. Inflation has been moving higher, but ECB President Christine Lagarde said that the bank would not respond to inflation “blips”.

In Canada, inflation ticked lower in February. Headline CPI dipped from 0.6% to 0.5%, while the core reading fell from 0.5% to 0.3%. ADP Employment plunged by 100.8 thousand, after a dismal read of -231.2 a month earlier.

1. UK Employment Report: Tuesday, 7:00. Wage growth has been steadily climbing and reached 4.7% in December. The upswing is expected to continue, with an estimate of 4.9%. Unemployment claims fell by 20 thousand in January, but are forecast to rise by 9 thousand in February. The unemployment rate has been moving higher and is expected to rise from 5.1% to 5.2%.
2. Fed Chair Powell Testifies: Tuesday, 14:00. Powell will testify before a congressional committee on the CARES Act, which provides Covid-relief, together with Treasury Secretary Yellen. The speech could trigger some volatility from the US dollar, especially if Powell addresses higher bond yields and inflation. Powell will testify on Wednesday before a Senate committee.
3. UK Inflation Report: Wednesday, 7:00. Headline CPI has been moving higher and is expected to hit 0.8% in February. Core CPI is expected to remain at 1.4% for a third straight month.
4. UK PMIs: Wednesday, 7:00. Manufacturing PMI has been showing prolonged expansion. The index is expected in at 55.0, little changed from 54.9. The Services PMI has posted four straight readings below 50, which indicates contraction. However, the estimate for March stands at 50.7.