Fundamental Comment

Economic Week: Fed, BOE meetings on radar

Fed, BOE meetings on radar this week

Financial markets' participants will carefully watch interest rate decisions by the Federal Reserve and the Bank of England this week, as well as the release of some important data related to economic growth.

US Dollar

The US dollar will remain in focus, as investors will track the Federal Reserve's interest rate decision and some important economic data released from the United States.

Expectations are for the Fed to keep interest rates unchanged this week as the Fed hinted at its last meeting that monetary policy will remain stable and that there were no plans to cut or raise interest rates this year.

Among the most important reports issued this week from the United States is the second reading of the fourth-quarter GDP, which may confirm a steady growth pace of 2.1 percent (year-on-year), which is the same as the final reading for the third quarter.

Another very important report is the U.S. Durable Goods Orders, which may show a 0.4 percent increase in December after it recorded a 2.0 percent decrease in January.

In addition, some data on the housing sector, in addition personal spending and consumer confidence may receive some attention from investors.

Pound Sterling

On Thursday, the Bank of England will decide on interest rates in light of pressure from the markets to reduce the borrowing cost.

Thursday's events are likely to affect the movement of sterling, as the central bank will set the benchmark interest rate and will release the minutes of the monetary policy meeting, along with the BoE Governor Mark Carney's press conference.

Monetary policy makers may decide to keep the cost of borrowing at 0.75 percent, after an ease in political instability, in addition to a slight decrease in the uncertainty about Britain's exit plan from the European Union.

However, some analysts believe that the recent decline in the consumer price index in December to only 1.3 percent, the lowest level in three years, may prompt the BOE to cut interest rates by 25 basis points.

Consequently, the sterling’s movements will depend heavily on the interest rate decision, as well as the shape of voting on this decision by the nine members of the monetary policy committee.  

Euro

The euro is likely to be affected by the general trend in the market due to the absence of highly important economic data from the euro area.

Yet, the most prominent data will probably be the initial reading of the growth rate in the euro area, which may remain unrevised at 0.2 percent in the fourth quarter, the same pace recorded in the third quarter.

Investors will also focus on inflation data, as the preliminary reading of the eurozone CPI is expected to stabilize at 1.3 percent in the year ended January.

Commodities

Gold prices experienced some decline at the end of last week after the World Health Organization disclosed in a statement that the new virus in China did not yet constitute an international emergency, but the metal continued to trade near the levels recorded in the past two weeks.

Gold prices will depend this week on the Federal Reserve meeting and economic data related to growth and its impact on the movement of the US dollar.

Regarding oil, prices witnessed a sharp decline last week, amid fears that the new Corona virus may spread in China, which will reduce travel and fuel demand and adversely affects the Chinese economy, but low US crude inventories helped cutting losses.

Oil price movements will depend on the aforementioned important economic reports, besides the weekly US government report tracking the change in U.S. crude stockpiles.

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