Market Steadies Ahead of ECB and Canadian Rate Decisions
GBP
GBP/USD has rebounded from its recent declines observed on Friday, currently trading at 1.2720 (interbank) in today's session. Similarly, the GBP/EUR pair is trading slightly higher at 1.1668 (interbank).
Disappointing UK Retail Sales figures for December initially triggered the downturn. The Office for National Statistics (ONS) reported a significant 3.2% drop in Retail Sales for December, exceeding the expected 0.5% decline and contrasting with the previous 1.4% figure. Year-over-year, sales fell by 2.4%, against an anticipated 1.1% rise.
This sharp decrease in consumer spending presents a challenge for the Bank of England (BoE) in maintaining firm monetary policies without risking economic downturn.
The BoE will closely watch upcoming data to assess whether inflation is aligning with the 2.0% target.
This week, UK data is sparse, but upcoming PMI data on Wednesday will be monitored.
No significant events are scheduled for today
EUR
EUR/USD has seen modest gains, currently trading at 1.0900 (interbank) in today's trading session.
Last week, Eurozone Inflation for December rose, breaking a seven-month slowing trend, though core inflation continued to decrease.
ECB officials have been wary of loosening financial conditions too soon.
The key event this week is Thursday's ECB monetary policy meeting and interest rate decision. No changes are expected, but ECB President Christine Lagarde's post-meeting remarks will be pivotal, potentially confirming rate cuts this year.
Investors anticipate ECB rate cuts by spring, expecting continued progress towards the 2% inflation target.
Today’s Events (GMT):
ECB President Lagarde Speaks
USD
The U.S. dollar index remains steady at 103.19.
Last week's U.S. retail sector showed positive growth at 0.4% for December, and the labour market remained robust.
The CME Fedwatch tool indicates a higher likelihood of unchanged U.S. interest rates in March, a shift from earlier expectations of a cut, supporting the dollar.
Key focus this week includes fourth-quarter GDP data, expected to show slowing growth, and upcoming inflation data, particularly Friday's PCE price index-which is the Fed’s preferred inflation gauge. Personal spending is expected to show a positive movement of 0.4%, while the PCE index is expected to remain unchanged.
Persistent inflation could lead the Federal Reserve to maintain higher interest rates longer.
No significant events are scheduled for today
CAD
USD/CAD pair has opened the week at 1.3430 (interbank).
Weakening crude oil prices are pressuring the Canadian Dollar, supporting USD/CAD.
Canada's annual inflation rose to 3.4% in December, aligning with forecasts.
Furthermore, Canadian retail sales dipped by 0.2% in November, with a rebound expected in December.
The highlight this week is the Bank of Canada's interest rate announcement and monetary policy report on Wednesday.
The central bank is likely to maintain its key rate at 5%.
Markets anticipate possible BoC rate cuts by spring to mitigate a severe economic slowdown while tackling inflation.
No significant events are scheduled for today
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