US Fed rate decision followed by the UK and Europe - with no sign of a solution in the Middle East.
We have central bank meetings in the US, Canada, Europe and the UK this week which has kept currencies within recent ranges, awaiting to see any forward guidance on the path of interest rates. With negotiations seemingly stalled in the middle east, the Wall Street Journal reported that President Trump instructed aides to prepare for an extended blockade of Iranian ports.
USD
Rising oil prices are fuelling fears of global inflation which mean markets are cautious and central banks will adopt a wait a see approach, but with an expectation on rising rates in the future. This evening, the Fed is widely anticipated to leave monetary policy settings unchanged following the April policy meeting, which is likely to be Jerome Powell's last as Chair – his comments on the future path of rates will be closely watched.
The USD has weakened recently, with GBP/USD trading at 1.3500 (1.3400 in January) and EUR/USD at 1.1700 (1.1400 in January).
GBP
The UK currency has held up better than the EUR during the past week, sustaining GBP/EUR above 1.1525. GBP is currently supported by evidence of the UK economy having started 2026 with more momentum than expected. Thursday sees the Bank of England meet to decide on interest rates and no change is expected but there are certainly hawkish tones coming from the Bank suggesting that the UK will see rate hikes later this year and in the medium term.
The 2yr government bond yield in the UK has increased by 30bp, whereas 2yr EUR yields have risen 20bp and just over 10bp in the USA. This suggests the UK will have a faster pace of rate hikes.
EURO
The euro-zone faces weaker PMIs and rising stagflation risks, alongside Business Confidence having deteriorated more quickly than during the previous energy price shock. EUR/USD trades steady around 1.1700 and the ECB is expected to leave rates on hold on Thursday.
Danske Bank note: "Meanwhile, the ECB's quarterly bank lending survey showed banks tightening credit standards across all loan categories in Q1, driven by higher perceived risks. Further tightening is expected in Q2, which could help cool the euro area economy ahead of anticipated ECB rate hikes this summer.”
CANADA
The Bank of Canada also meets this week, with markets expecting rates to remain unchanged at 2.25%throughout 2026, with a twist towards neutral in early 2027, with a keen eye on data.
AUSTRALIA
Inflation data showed inflation increasing from 3.7% to 4.6% (expectations were of 4.7%) and although the AUD did not react too much, AUD/USD trades around 0.7160 on the back of the weaker than expected inflation print. The Australian central bank my deliver another rate hike in May, which helps to support the currency.