FX Week Ahead – Top 5 Events: BOE, ECB & RBA Rate Decisions; Canada Employment Report; American NFP

Preview of the week ahead:

  • The first week of February brings several rate decisions and jobs reports from the G20 economies.
  • While the Reserve Bank of Australia and the Bank of England could take concrete action this week, the European Central Bank is still several months away from changing its position.
  • The Canadian jobs report and the U.S. nonfarm payrolls report for January could prove disappointing as the omicron variant of COVID-19 rocked North America.

For the entire week ahead, please visit the DailyFX Economic Calendar.

02/01 TUESDAY | 03:30 GMT | Reserve Bank of Australia AUD rate decision

The Reserve Bank of Australia take note of the fact that Iinflationary pressures and expectations remain high, and a recovering labor market should help keep growth up for the foreseeable future. Likewise, they will likely zero out their QE program. EAustralia’s current unemployment rate of 4.6% is fast approaching the RBA’s 2022 end-of-year forecast of 4.2%. These factors point to an aggressive RBA this year – but no rate hike is imminent.

According to Australian Overnight Index Swaps (OIS), the first rate hike of 25 basis points is scheduled for July (54% chance). A second-order rise is scheduled for September (61% chance) and a third rate hike expected in December (64% luck). Any commentary that drags forward rate hike odds will prove beneficial for the Aussie dollar as the RBA closes the policy gap with more hawkish central banks like the Federal Reserve.

02/03 THURSDAY | 12:00 GMT | Bank of England GBP rate decision

Owith UK inflation ratesgo highest level in a decade and accumulating evidence that the labor market is steadily improving, both Bengland anchor policymakers and rate markets believe further policy tightening is ahead. Rates markets view February 2022 as the most likely time for the next rate hike, with a 98% chance of a 25 basis point rate hike; that’s a 66% increase early January. Moreover, interest rate markets have anticipated a fourth rate hike in 2022, compared to three early 2022. A BOE rate raise this week aligns perfectly with the release of the next version of the Monetary Policy Committee’s Quarterly Inflation Report (QIR). Sterling should remain well supported around an increasingly hawkish BOE.

02/03 THURSDAY | 12:45 GMT | European Central Bank EUR rate decision and press conference

ECB policymakers have been beating the same drum over the past few months: no rate hikes are expected in 2022. The last policy meeting of 2021 noted that the Governing Council believed that “monetary accommodation is still needed for inflation to stabilize at the 2% medium-term target inflation rate ECB President Christine Lagarde called the current rise in inflation a “hump”. This week’s inflation data, however, shows that price pressures are not receding as quickly as expected. The interest rate markets set prices in a#89% chance of first 10 basis points increase in prices to arrive in July 2022. Nevertheless, European Rallythat is to say could provide a selling opportunity as the odds of an ECB rate hike fall back, in line with feedback from policy makers.

02/04 FRIDAY | 1:30 p.m. GMT | Change in employment in CAD and unemployment rate (JAN)

A spike in COVID-19 omicron variant infections coupled with growing protests against mandatory vaccinations may have hampered the Canadian labor market in early 2022. According to a Bloomberg News survey, the Canadian economy lost -117.5 000 jobs in January after adding +54.7K jobs in December. The Canadian unemployment rate is expected to jump significantly, from 5.9% to 6.2%. But with risk appetite starting to stabilize and oil prices continuing to climb, any weakness seen in the Canadian dollar around a weak January jobs report could prove to be an opportunity ‘buy the drop’.

02/04 FRIDAY | 1:30 p.m. GMT | Non-agricultural payroll in USD and unemployment rate (JAN)

As in Canada, the spread of the omicron variant of COVID-19 appears to have weighed on the US labor market. Notably, US jobless claims rose every week through January, and alongside falling PMI readings, a weaker US employment reading is expected. According to a Bloomberg News survey, forecasters are looking for job growth of +153K while the unemployment rate (U3) is anticipated hold at an impressive 3.9%. Meanwhile, the U.S. labor force participation rate is expected to stay on hold at a still skinny 61.9%. Wage growth should remain robust, at +5.2% y/y in January against +4.7% y/y in December.

Atlanta Fed Jobs Growth Calculator (January 2022) (Chart 1)

The U.S. economy continues to move closer to achieving “full employment” as it was experienced before the pandemic. According to the Atlanta Fed’s jobs growth calculator, the US economy needs more424K jobs growth per month over the next 12 months to return to the pre-pandemic US labor market of 3.5% unemployment rate (U3) with a labor force participation rate of 63.4%.

— Written by Christopher Vecchio, CFA, Senior Strategist

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