News & Analysis

Looming tightening monetary policy by the Bank of England and Federal Reserve drove much of the price action during this past week, while geopolitical tensions remained on the forefront as well. As for the Bank of England, a further improvement in the jobs data and a decent upside surprise in the UK CPI inflation report served as another confirmation of a BoE rate hike in February. The percentage chance of a February rate hike grew by nearly 20%, with a raise next month now fully priced in by OIS markets. In the monetary space, the Norges Bank and Central Bank of the Republic of Turkey held policy rates on hold, which did little for the Norwegian krone, but the lira did enjoy a modest boost as this took some pressure off investors’ shoulders. The CBRT referenced the lira in its rate statement, which signals to markets that the CBRT is monitoring the FX rate and arguably has a currency target. Next week, policy expectations will continue to drive markets with the Federal Reserve and the Bank of Canada set to release their latest policy decisions. Both central banks are on the more hawkish side of the spectrum given their robust economic outlook, solid labour market recoveries and broad-based inflationary pressures. For the FOMC, all focus will be on whether the tone of Powell’s comments are in line with broader market expectations of a 25bps rate hike in March, while for the BoC, a third of economists surveyed by Bloomberg expect a 25bps rate hike next week already.

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Ima Sammani, FX Market Analyst



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