3 Rate Decisions to Govern the FX Market This Week

After reading through the School of Pipsology, you should know by now that a country's interest rate is one of the most important determining factors in the perceived value of the domestic currency.

Because central banks are the ones who dictate the benchmark interest rates, economists and traders alike always keep their eyes peeled and their ears open during announcements. Interest rate statements are the central banks' way to communicate to the market their future monetary policy decisions.

The upcoming week is a packed one as three major central banks--the RBA, the BOE, and the ECB--are scheduled to announce their rate decisions. Here's a brief look at what we can expect from them:

In its previous interest rate decision on May 7, 2013, the RBA shocked the markets by cutting rates to 2.75% from 3.00%. According to Governor Glenn Stevens, the central bank chose to cut rates to encourage sustainable growth in the economy. The inflation rate was also low enough for the bank to make the adjustment to monetary policy. Many economists are saying that the strength of the Aussie was a major factor, too, as it was hurting Australia's robust export industry.

For the upcoming statement, traders will be eager to see how dovish the RBA truly is. Hints at more rate cuts in the future could cause AUD/USD to break .9500 and head to the next key support at .9100.

Even though no changes were made by the BOE to monetary policy, it still received a lot of fanfare due to the contents of the accompanying statement. Armed with the knowledge that the U.K. had returned to growth in Q1 2013, the BOE had a relatively optimistic tone.

However, a few weeks after, it was revealed that the country's inflation rate was actually trailing below forecast, increasing the chance of further easing once incumbent BOE Governor Mervyn King gets replaced by Mark Carney.

The upcoming rate decision will be Mervyn King's last one. As such, many economists simply expect him to set the stage for a smooth transition to Mark Carney. Any suggestion that further easing is possible due to the weak inflation figures will likely be bearish for the pound.

The euro took a huge hit after the ECB's most recent rate statement. After months of speculation, policymakers finally decided to increase support for the euro zone economy by cutting the main refinancing rate to 0.50% from 0.75%. It wasn't completely unexpected, as over 50% of Bloomberg economists had predicted it.

The ECB acted because of the worsening economic outlook. Inflation in the euro zone was plunging, market confidence was falling, and most of its member nations were still experiencing negative growth.

For upcoming statement, market participants aren't betting on another cut. However, many analysts are saying that the rate cut alone wouldn't be able to get the job done. According to them, the ECB needs to implement some new unconventional measures to truly jumpstart the economy.

There ya have it, folks... Three rate statements for the upcoming week, which ones will you trade?