This week was highly significant in terms of market data and events, possibly the most important week of the calendar year so far. Previous week’s events continued to influence volatility, especially following the collapse of several banks in the US and Europe. The first major release of the week was the UK CPI which came in considerably higher than anticipated, remaining above 10% (10.4%) – a key point for the BoE when making base rate decisions. This resulted in whispers of the BoE holding fast on their rate hikes being quickly quashed, as it became increasingly clear that the UK economy still has a long way to go in its battle against inflation. It remains to be seen whether the BoE’s policy of inflation, above all else, may change if the rest of the economy begins to falter.

The shockwaves from this development reverberated across markets, with Sterling rising against most major currencies, and GBP/USD trading at its highest level since January. All eyes then turned to the Fed, which was scheduled to make its latest base rate decision later that evening. The Fed has been successful in slowing down the economy through hiking interest rates, and it was unclear whether they would continue to hike or hold at 4.75% for now. The decision came, and they opted for a 25bp increase, viewed as a risky move by many traders, resulting in a brief sell-off of the USD, with Sterling and Euro capitalizing. Although the USD has gained back some of its losses, this could be a sign of things to come, with the UK and Eurozone hoping that the extended period of USD dominance will be coming to an end.

Yesterday, it was the BoE’s turn, and the 25bp hike that the BoE decided to go for was already priced into the market. There was little change to the currency market, with GBP/USD trading in a range of around 100 points throughout the day. Stronger than forecast US unemployment data also played a part in stopping the USD from losing too much ground. GBP/CHF also held steady following the SNB’s decision to opt for a 50-basis point hike on the same day as the BoE made their decision, with GBP/CHF settling around 1.12-1.13. To round the week off, we had PMI Friday, with the latest figures for both Manufacturing and Services PMI coming out for the G3, with the US being the only one of the G3 to show growth m/m in both categories.

Overall, this action-packed week will be followed by a week with little out, although recent times suggest that we can be sure to see something major happen.