Weekly currency forecast: BoE and Fed decisions to drive notable volatility? 

The US dollar strengthened last week after the latest US GDP figures and core PCE price index – the Federal Reserve’s preferred measure of inflation – both printed above forecasts. 

Looking ahead, this week could bring significant volatility as markets brace for the Fed and Bank of England (BoE) interest rate decisions, along with a flurry of high-impact economic data. 

Pound  

The pound found some success in the first half of last week as the UK’s latest PMI surveys showed an acceleration in business activity this month. However, a lack of data saw Sterling slip against its stronger peers in the latter part of the session. 

This week, all eyes are on the Bank of England’s monetary policy announcement, with the decision on a knife edge. An interest rate cut could see the pound plunge, while a hold could lift GBP exchange rates. 

Euro  

Weaker-than-forecast Eurozone PMI results dented the euro last week. However, the common currency managed to rise against its weaker peers in the second half of the session, with some European Central Bank (ECB) comments and a risk-off mood lifting EUR. 

Looking ahead, the Eurozone’s GDP figures and consumer price index are due Tuesday and Wednesday, respectively. If we see slowing growth in the second quarter and easing inflation in July, the euro could slide on elevated ECB rate cut bets. 

US dollar  

The US dollar climbed last week as both second-quarter GDP and June’s core PCE price index exceeded expectations, thereby prompting bets that the Federal Reserve may wait longer before cutting interest rates. 

The Fed will conclude its latest policy decision later this week. While no change to interest rates is expected, USD could face selling pressure if the bank signals that a rate cut is likely in September. 

Australian dollar  

The Australian dollar plunged to multi-month lows last week, as worries about China’s economic outlook, a risk-off mood and falling commodity prices all conspired to drag the ‘Aussie’ lower. 

AUD may be able to stage a recovery this week, if Australian data shows that inflation accelerated in the second quarter, as this could boost bets on another interest rate hike from the Reserve Bank of Australia (RBA).