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USD strength continues into a week of central bank meetings

USD strength continues into a week of central bank meetings

Last week was eventful on markets with the dollar being the main mover. The currency made gains (between 1-1.5%) following the hawkish post-Fed meeting press conference with Chair Powell advising markets to expect a more aggressive pace of rate hikes.

As we get started this morning, the USD strength is reflected in EUR/USD opening down near the midpoint of the $1.11-1.12 band, having started last week above the $1.13 threshold, and GBP/USD is trading near to the $1.34 mark. On the sterling front, EUR/GBP has drifted down towards the key 83p support level.

Looking ahead to the week ahead, Central bank meetings are very much the key calendar items and therefore entail some risk for FX markets. The BoE is expected to follow its December rate hike, with a 25bps rise this week. However, given this adjustment is already priced in by markets, the key potential impact for sterling may stem from further guidance that the BoE provides regarding further hikes this year. 

In contrast, the ECB is not expected to make any policy changes, however if the central bank continues to emphasise that rate hikes are unlikely this year, the euro could continue to struggle against the dollar and sterling. Data-wise, US payrolls and Eurozone inflation for January are the main releases this week. The release of the Sue Gray report also posses some event risk for sterling.

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