The current focus in the market is primarily on the monetary policies of central banks. This week, the Federal Reserve and the European Central Bank are holding meetings, followed by the Bank of England next week.
Analysts are assessing the likelihood of another interest rate hike by the Federal Reserve this month or the next, placing it at less than 50%. The upcoming inflation data, to be released next week, will play a crucial role in determining the outcome. As inflationary pressures continue to ease, market expectations point towards rate cuts by the end of the year.
Regarding Europe, Christine Lagarde, the President of the European Central Bank, maintains a hawkish stance, and two more rate hikes are anticipated in the upcoming months as part of the ongoing effort to control inflation, despite a recent decrease.
The Bank of England faces arguably the most challenging situation, as UK inflation remains persistently high according to all measures. The market has already factored in four additional rate hikes, which would push rates above 5% by the end of the year. Given the UK housing market's sensitivity to higher interest rates, the economic outlook appears gloomy, and the risk of a recession looms large, despite conflicting data. The upcoming general election next year only adds to the overall uncertainty.
Global geopolitical tensions remain heightened and will continue to impact market sentiment for the foreseeable future.
In terms of trading activity, interest rate differentials continue to be crucial, with momentum driven by inflation and job data. The British pound (GBP) remains in high demand due to the anticipated interest rate outlook, leading to GBP/USD trading around 1.2550 and GBP/EUR near its highest level of the year above 1.1700.