While developments in the Middle East will remain a key market driver this week, attention will also turn to central bank policy, with a raft of interest rate decisions from major banks set to inject additional volatility into currency markets.
Last week's key rate movements
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GBP/EUR – Up 0.4% on the week
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GBP/USD – Unchanged on the week
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EUR/USD – Down 0.4% on the week
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AUD/USD – Down 0.3% on the week
Pound (GBP)
The Bank of England (BoE) will deliver its latest interest rate decision this week. No policy changes are expected from the bank following its April meeting, but the pound (GBP) could come under pressure if the bank’s forward guidance strikes a more cautious tone than it did in March.
Euro (EUR)
The European Central Bank (ECB) is expected to leave its monetary policy untouched following its latest meeting this week, but any hints that interest rates may need to rise in the future could boost the euro (EUR). However, any gains for the single currency could still be tempered by a weak Eurozone GDP print.
US dollar (USD)
Middle East peace optimism and a middling US GDP print may both act as headwinds for the US dollar (USD) this week, although the Federal Reserve could act as a counterbalance if it signals that monetary policy will need to remain restrictive for the foreseeable future.
Australian dollar (AUD)
Australia’s latest CPI print is likely to act as the main catalyst of movement for the Australian dollar (AUD) this week, with a sharp acceleration of inflation in the first quarter likely to reinforce Reserve Bank of Australia (RBA) rate hike bets and underpin AUD.
South African rand (ZAR)
In the absence of any notable domestic data, movement in the South African rand (ZAR) will likely remain tied to market risk dynamics this week, with the currency likely to firm if there is any progress in US-Iran peace talks.
Canadian dollar (CAD)
In addition to the continued uptick in oil prices, the Canadian dollar (CAD) may also be supported by the Bank of Canada (BoC) this week if its outlook on policy hints at the potential need for some tightening in the future.
New Zealand dollar (NZD)
NZD investors will look to a speech by Reserve Bank of New Zealand (RBNZ) Governor Anna Breman for impetus this week, with the New Zealand dollar (NZD) likely to attract support if her comments hint at the need for future monetary tightening.
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