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Week Ahead: FOMC, ECB, UK Election, and Poloz Speech

EURGBP Rebounds

UK General Election: Watch GBPUSD, and EURGBP

The UK general election should be this week’s top market mover. The most significant risk for the GBPUSD is if the conservatives fail to get a majority, as the betting markets are giving it a 78% probability that PM Johnson has enough momentum to capture the 326 seats needed to form his own majority. In total, there are 650 seats in the House of Commons.

The latest poll shows that the Tories where ahead 10-points according to the Financial Times poll tracker, and this is not enough to be able to say with certainty if they get their own majority.  Voting will end on Thursday at 10 PM London time, and we should be receiving an exit poll shortly afterward.

As for the GBPUSD, the pair has risen sharply over the last few days, and the next support level can be found at the October high of 1.3017, while the May 2019 high of 1.3179 might stop trades in their tracks for some profit-taking.

Federal Reserve Decision: Watch EURUSD, and USDJPY

This week’s Fed rate meeting should not spur any major moves but it is still interesting to hear what the FOMC has to say about the latest Non-Farm Payroll figures. The bank will also release its latest economic projections.

In September, the Fed anticipated that the unemployment rate would be at 3.7% by the end of the year, but the latest reading showed that the unemployment rate declined to 3.5%. Core PCE was anticipated to be 1.8%, while the latest reading was for 1.6%. The headline figure was 1.3% vs. the 1.5% anticipated.

Given the better than expected unemployment rate, and softness in inflation, the rates markets are giving it a 99.3% probability that rates will remain unchanged in the 150-175 interval at this week’s meeting. By the June 2020 FOMC meeting, the rates markets are projecting that the interest rates would be lower by 25 bps with a probability of 40.8%.

European Central Bank: Watch EURUSD and EURGBP

Thursday’s ECB rate meeting will be important for ECB watchers as it will be the first meeting with Christine Lagarde, the new head of the ECB. Economists are not anticipating any major changes, but it will be interesting to watch her, and how she relates to the past actions of the ECB, for clues to what may happen in the future.

Other events to watch: US CPI and Poloz

US Inflation figures are out on Wednesday. Annual headline inflation is anticipated to rise to 2% from 1.8%, while Core inflation is anticipated to remain unchanged at 2.3%. These measures are not the Fed’s preferred inflation gauge, but if they move firmly over the 2% level, it might force the Fed to rethink their view on inflation.

Given the latest soft Canadian unemployment figures, it will be interesting to listen to BoC head Stephen Poloz’s speech on Thursday. Canadian unemployment rose sharply to 5.9% from 5.5% prior, while economists projected the unemployment rate to remain unchanged. At the same time, the Canadian economy lost 71200 jobs vs. -2007 projected and +10K prior.