After the ECB announced stimulus plans last week, financial markets will be closely watching the meetings of major central banks this week to see the direction of monetary policy in the coming period and its impact on major currencies.
The Chinese government will also release data on industrial production and retail sales, which are usually of great importance, especially as the trade war between China and the United States continues.
Markets will also keep up with the latest developments in the trade standoff between the U.S. and China, with tensions easing recently.
Fed rate decision to shape dollar’s trajectory
The Federal Reserve will meet this week to determine the interest rate and monetary policy trajectory according to the latest developments in the US economy, and under the continued pressure from U.S. President Donald Trump to cut interest rates.
Fed members are expected to vote in favor of a rate cut to 2.00 per cent from the current 2.25 per cent.
The recent decline in U.S. economic data, the potential negative impact of the trade war with China and the decline in global growth, as well as Trump pressure and ECB action, are sufficient reasons to prompt the Fed to cut its borrowing cost.
In case of a more-than-expected rate cut or the Fed's preparation for further rate declines in the coming period, the greenback will probably be negatively affected.
Investors will also follow the press conference of Fed Chair Jerome Powell, as he will comment on the Fed’s interest rate, growth, inflation and unemployment forecasts in the US economy.
Pound will attempt to resume rebound
The pound continued to rise against the U.S. dollar, climbing to a seven-week high last week, on lower expectations that Britain would exit the European Union at the end of October without an agreement.
The highlight of this week will be the Bank of England meeting which is expected to hold monetary policy, especially after the release of strong UK labor market data and amid growing optimism that the no-deal Brexit scenario can be avoided.
As for the economic reports, the most important this week are the U.K. inflation and retail sales reports, but the eyes will remain open to the melting political situation within the British Parliament.
Analysts expect retail sales to fall 0.2 percent in August after a 0.2 percent rise in July.
The consumer price index, the BoE’s preferred inflation gauge, may experience a retreat to 1.8 percent in August year-on-year from 2.1 percent recorded in July.
Euro may follow the general sentiment
This week, the euro will likely be moving with the general market sentiment due to the absence of significant economic data from the euro zone.
The most notable report is the final euro-area CPI reading for August, which is expected to stabilize at 1.0 percent year-on-year.
Gold looks for support from Fed
Gold declined last week despite the ease in trade tensions between the United States and China, but prices remained above the psychological level of $1,500 an ounce as it benefited from the dollar's drop at the end of last week.
Gold prices will depend this week on the Federal Reserve's interest rate decision, noting that a more-than-expected rate slash by the Fed could push gold prices higher.
As for oil, prices fell by the end of last week amidst concerns over a slowing global economy and as oil demand outweighed progress in the US-China trade dispute.
Last week's US government crude inventories report, which indicated a larger than expected decline in US crude stockpiles by 6.9 million barrels in the week ending September 6, was unable to provide sufficient support for oil prices.
Chinese data and the economic outlook for the US economy by the Fed
could significantly affect oil prices this week.