Last week was a difficult one for Sterling. Cable closed out the week at 1.3220, and with oil prices breaching $100 per barrel once again, the broader macro backdrop remains unsettled. Volatility has been the defining feature of markets recently, and with geopolitics firmly back in the driving seat, this week looks set to follow the same pattern.
For businesses and investors with currency exposure, that volatility cuts both ways. Yes, it creates uncertainty. But it also creates opportunity, and right now there are some genuinely compelling set-ups, particularly for anyone looking to sell GBP to buy Euros, or selling Dollars into virtually any other currency. The question is not whether these opportunities exist, it’s how long they last. Given the pace at which the geopolitical landscape is shifting, the answer may well be: not much longer.
The backdrop here matters. The Strait of Hormuz remains effectively closed to the vast majority of vessels, and that is feeding directly into both shipping costs and oil prices. When energy costs rise, inflation follows, and when inflation is elevated, central banks are forced to respond, or at least explain why they are not. That brings us neatly to the centrepiece of this week’s calendar: eight central bank rate decisions, spread across four days. Alongside those, a series of inflation and industrial data prints will give us additional colour on where policymakers are likely to head next. Let’s break down each day.
Monday: A Quiet Open, But Don’t be Fooled
We begin the week on a lighter footing. Chinese retail sales and industrial production data are due, offering a read on consumer demand and manufacturing output in the world’s second-largest economy. Later in the session, US manufacturing and industrial production numbers round out the day. Neither print is expected to deliver a major surprise, and markets are unlikely to move significantly on either release. That said, any downside miss from China in particular could add to the risk-off tone that has been building in recent weeks, so it is worth keeping an eye on.
Tuesday: The RBA Moves, and Europe Gets a Reality Check
Tuesday brings the first of the week’s rate decisions. The Reserve Bank of Australia is widely expected to lift the cash rate by 25 basis points, taking it to 4.10%. If delivered, this should provide a meaningful boost to the Australian Dollar. For businesses with AUD exposure, or clients invested in Australian property, this is worth factoring into your thinking now.
Also on Tuesday, Germany’s ZEW Economic Sentiment survey is forecast to fall to 39.0. While still positive in absolute terms, the direction of travel is concerning. Germany remains the engine room of the Eurozone economy, and a weakening outlook there tends to weigh on Euro sentiment more broadly. For anyone looking to sell Euros, a softer ZEW print could offer an attractive entry point.
Wednesday: Inflation Data on Both Sides of the Atlantic, and Two Rate Holds
The middle of the week is heavy on data and central bank activity. Eurozone CPI is expected to come in unrevised at 1.9%, which on the face of it looks benign, but context matters. With energy prices elevated and supply chain pressures re-emerging, the risk is that this number proves stickier than expected in subsequent months.
In the US, Producer Price Index data is forecast to print slightly higher at 3.0%, a reminder that inflationary pressures have not gone away across the Atlantic either.
On the rates front, both the Bank of Canada and the Federal Reserve are widely expected to hold. The Fed decision later in the evening will attract the most attention. Markets will be parsing every line of the statement and the press conference for any indication of how long rates will remain at current levels, and whether the bar to a cut is rising or falling in light of current geopolitical conditions. Dollar positioning ahead of the statement could create some short-term FX moves worth watching.
Thursday: The Big One
If Wednesday is busy, Thursday is extraordinary. Five central bank decisions in a single day: the Bank of Japan, the Swiss National Bank, Sweden’s Riksbank, the Bank of England, and the European Central Bank. All five are expected to hold rates unchanged, but the decisions are far from routine.
The Bank of England deserves particular focus. This meeting was originally flagged as a potential cut, and up until recently, markets had been pricing in a meaningful probability of that happening. Events, as they say, have intervened. The combination of elevated inflation, rising energy costs, and geopolitical uncertainty has taken a rate cut firmly off the table for now. What markets will be focused on instead is the Monetary Policy Committee’s tone, specifically how they characterise the outlook for Sterling and the UK economy, and what conditions would need to be in place before cuts become possible again. That guidance will set the tone for GBP crosses heading into the back end of the month.
The ECB’s hold is similarly expected, but any nuance in Christine Lagarde’s language around growth versus inflation will be closely watched, particularly given the ZEW data due earlier in the week.
The Bigger Picture
Eight central bank decisions in a single week, against a backdrop of $100 oil, a closed shipping corridor, and significant geopolitical uncertainty, this is not a normal week. For businesses managing cross-border payments, the temptation is always to wait and see. But with this much event risk compressed into five trading days, the window to act at favourable levels may narrow quickly.
If you are selling GBP to buy EUR, or converting USD receipts into any other currency, it is worth having a conversation now rather than reacting after the fact. Forward contracts, limit orders, and structured strategies exist precisely for moments like this.
If you want to talk through how any of this week’s events could affect your specific currency flows, get in touch.
GBP/EUR 1.1565 GBP/USD 1.3244 GBP/AED 4.8675
GBP/AUD 1.8854 GBP/CHF 1.0446 GBP/CAD 1.8146
GBP/NZD 2.2747 EUR/USD 1.1440 GBP/ZAR 22.3338