Central bank interest rate decisions heavily in focus this week
Interest rate decisions from the Reserve Bank of Australia and the Bank of England headline the economic calendar this week, with most economists predicting that both central banks will keep interest rate and monetary policy unchanged.
The Reserve Bank of Australia is widely tipped to get keep rates on hold this month, following a recent series of dovish rate reductions, however, the monetary policy statement from the Australian central bank is likely to be the main focus of Tuesday’s meeting, following the release of weaker-than-expected quarterly inflation data last week.
Any hint of a rate cut in December from the RBA has the potential to send the Australian Dollar crashing lower this week. Key changes to policy language from the RBA will also be closely observed, particularly any forward guidance towards zero-bound interest rates.
The Bank of England interest rate decision this coming Thursday should set the stage for the central bank outlining the risks for the UK economy if a Brexit deal is not agreed upon before the January 31st deadline. The Bank of England is also expected to reiterate that the damage is being done to the UK economy due to Brexit uncertainty.
A full outline of the central bank’s current thoughts on the state of the United Kingdom economy should see Bank of England policymakers talking up inflation and the current state of the UK job market.
Any calls for an interest rate increase next year if a Brexit deal is struck should be supportive for the British pound, although the gains could be short-lived as the Conservative party still have a hard-fought election battle to secure before a Brexit deal can be agreed upon.
GBP/USD Daily Candlestick Chart | Source: ActivTrader
The British pound risks declining back towards the 1.2700 level against the U.S Dollar if buyers fail to take price past the 1.3000 level this week. A sustained break under the 1.2920 support level may start to encourage sellers to take the GBP/USD pair back towards the 1.2820 technical area and possibly even the 1.2710 level.
Written by Nathan Batchelor, External Analyst, ActivTrades
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