Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

FX Outlook: Biggest Risks From FOMC, Retail Sales And BoE

By Kathy LienForexMar 15, 2021 22:34
FX Outlook: Biggest Risks From FOMC, Retail Sales And BoE
By Kathy Lien   |  Mar 15, 2021 22:34
Saved. See Saved Items.
This article has already been saved in your Saved Items
This will be a busy week for the forex market. There are three central bank meetings, U.S. retail sales, New Zealand Q4 GDP, Australia’s employment report and Canadian retail sales scheduled for release. The main focus will be the Federal Reserve’s monetary policy announcement, but every one of these events could have meaningful impact on currencies that could lead to interesting cross moves.  
The U.S. dollar kicked off the week with gains against most currencies despite a pullback in Treasury yields. Manufacturing activity in the New York region accelerated with the Empire State index rising to 17.4 from 12.1. Better than expected U.S. data is one of the main reasons why investors expect the Federal Reserve to upgrade its economic projections this week.
Investors have a lot of questions for the Fed. The last time the central bank updated its forecasts was in December, and a lot has changed since then. Fresh lockdowns were put into place during the holidays but many of those restrictions have been eased after more than 20% of the population received at least one COVID-19 vaccine shot. The outlook brightened significantly over the past few months, so at minimum the economic projections will need to reflect that. Growing price pressures should also lead to upgraded CPI forecasts. But two big questions remain: Is the latest rise in yields worrying the Fed? And how will the dot plot forecast for interest rates change? Chairman Jerome Powell made it clear in recent comments that he’s not worried, but how long can U.S. policy-makers remain cool if yields continue to shoot higher? 
Even if Powell continues to downplay the move in yields, the dot plot will most likely edge upwards. An when that is combined with higher economic projections, the U.S. dollar should extend its climb. If it falls, we expect bargain hunters to swoop in quickly. Tomorrow’s retail sales report will play an important role in setting expectations for Wednesday’s rate decision. Currently, economists are looking for spending to contract in February after a strong January. However, higher gas prices, an uptick in average hourly earnings growth along with a very strong jobs report supports a positive surprise. 
If the U.S. dollar extends its gains, EUR/USD is at the greatest risk of correction. Last week, the European Central Bank announced plans to accelerate asset purchases. This week starts with a deluge of negative vaccine headlines. Many countries, including Germany, France, Spain and Italy, have halted the use of the AstraZeneca (NASDAQ:AZN) vaccine amid clotting concerns. Vaccine shortage was a problem before the latest announcement and, unfortunately, this will slow the EU’s immunization program even further. The repercussions are becoming evident already with new cases surging in Germany and Italy. Italy imposed new lockdowns ahead of the Easter holiday and, according to the head of Germany’s public health agency, a “third wage in Germany has already begun.”  Both countries are suffering from painstakingly slow vaccine rollout. The contrast between the Eurozone and the U.S. on everything from monetary policy to their economic outlooks and immunization programs is wide, which is a big problem for EUR/USD. The German ZEW survey is scheduled for release tomorrow – sentiment will be bolstered by the rally in stocks, but local troubles are brewing.
The Bank of England is also expected to leave monetary policy unchanged this week, but the big question for the BoE is the timing of rate hikes. Although the economy is improving and the UK is leading in vaccine rollout, the volatility in the bond markets and rise in yields takes a rate hike off the table. Since the start of the year, we’ve seen 10-year rates rise from 0.15% to 0.85% this morning. While this is still very low, the BoE may share the ECB’s concerns about the speed of the rise in yields.  
FX Outlook: Biggest Risks From FOMC, Retail Sales And BoE

Related Articles

Jeffrey Halley
Currency Markets Look For Direction By Jeffrey Halley - Nov 24, 2020

Dollar whipsaws against euro, sterling Currency markets were whipsawed last night, with the dollar index trading in a near 80-point range before closing almost unchanged. The...

FX Outlook: Biggest Risks From FOMC, Retail Sales And BoE

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email