Three central bank rate decisions and US CPI

Today promises to be another busy one for the currency markets as investors consider at least four major events. There are three central bank decisions and top tier economic data from the world’s largest economy to keep market participants busy.

Will there be any dissenters at BoE?

The Bank of England will make its rate decision at 12:00 BST. No change is expected to be seen this time however given that the Bank only hiked rates at its previous meeting in August. The MPC will want to monitor over the coming weeks and months ongoing Brexit negotiations as they reach their critical stage and watch for signs of further wage growth after earnings rose more strongly than expected last month. I suppose the only surprise would be if there are any dissenters voting for a rate hike at this meeting, for the market widely expects a unanimous vote on both interest rates and QE to remain unchanged.

Thus, the pound is more likely in our humble opinion to rise than fall today, although it might be difficult to see the pound’s strength in pairs such as GBP/TRY, EUR/GBP and GBP/USD, for we have rate decisions from the CBRT, ECB and CPI inflation data from the US also today.

CBRT “should cut this high interest rate” says Erdogan

Turkey's central is also making a rate decision at the same time as the BoE, which is likely to move the lira and may have repercussions on other emerging market currencies. So far the CBRT, under pressure from President Erdogan, has been reluctant to significantly hike interest rates in order to bring runaway inflation and the heavy selling of its currency under control. But after the recent heavy falls in lira which drove the USD/TRY to a new record of above 7.00 for a time, the central bank may have to tighten its belt at this meeting or risk resuming the selling pressure. Or so you’d think, right? Bizarrely, Erdogan was reported as saying that Turkey “should cut this high interest rate,” just less than two hours before the central bank’s rate decision. The Lira sank, pushing the USD/TRY 3% higher at the time of writing.

Drgahi may be unable to shoot euro down this time

Meanwhile the European Central Bank’s rate decision is at 12:45 BST with the press conference scheduled for the usual 13:30 BST slot. Mario Draghi, the ECB head, is likely to re-iterate that QE is ending at the end of the year and that rates will rise after the next summer. Draghi has been successful at shooting the euro down at each of its previous six press conferences, but he’s running out of bearish things to say. Thus, the single currency could surge higher today in the event there are more elements of hawkish surprises in his speech.

US CPI key data

US consumer inflation data will be closely watched for the next moves in the dollar, with the data coming in just as the ECB’s presser gets underway, at 13:30 BST. Thus, it will be an interesting afternoon for the EUR/USD in particular. Headline CPI is expected to come in at 0.3% month-over-month, with the year-over-year rate seen edging down to 2.8% from 2.9% previously. Core CPI is seen rising 0.2% on the month, keeping the year-over-year rate unchanged at 2.4%. In the event the inflation numbers are weaker, and given the fact that the Fed’s next two potential rate hikes are well documented, the dollar could drop sharply. However, if the CPI beats then we could see the greenback press further higher.

EUR/USD coiling for a potential big move

After defending long-term support at 1.13, the EUR/USD has been consolidating in a tight range around the long-term pivotal level of 1.16. It has consistently found support around 1.1530 in recent trade. Thus, a closing break below this level would be bearish. Short-term resistance has been provided by 1.1650. Any suitable move beyond this level could lead to a breakout above the most recent high of 1.1745. Regardless of which direction it breaks, the important point here is that rates will likely make a significant move in the direction of the break, providing plenty of tradable opportunities in the days to come. One other important point here is the possibility of a fake out which is quite common in FX markets. Fakeouts tends to cause a significant move in the opposite direction. If such a behaviour is noticed again today then this could also provide plenty of tradable opportunities.