Buckle Up! Central Banks’ Rate Moves to Rock Forex Markets!

Tuesday, 28 January 2025, 17:00 – US CB Consumer Confidence (Jan)

The U.S. Conference Board Consumer Confidence Index experienced a sharp drop in December, falling by 8.1 points to 104.7 from November’s 112.8, and coming in below economists’ forecast of 112.9. This significant decline highlights growing concerns about the economic outlook. The Expectations Index, which measures consumers’ short-term views on income, business, and labor market conditions, also plunged by 12.6 points to 81.1—barely above the critical threshold of 80, often associated with potential recession risks. With this recent downturn, the index is expected to stay low, reflecting persistent consumer worries about economic conditions.

Wednesday, 29 January 2025, 16:45 – BoC Interest Rate Decision

In December 2024, the Bank of Canada (BoC) announced a 50-basis-point cut to its overnight rate, bringing it down to 3.25%. This decision was driven by sluggish economic growth and a decline in inflation, with the annual inflation rate dropping to 1.8%. Slower-than-expected economic activity prompted the central bank to lower rates to stimulate growth. Additionally, business sentiment indicated that most Canadian companies expect inflation to stay within the BoC’s target range. However, nearly half of those surveyed predicted slower wage and price growth due to weaker consumer demand. Looking ahead, markets anticipate further rate cuts, though likely smaller in scale—around 25 basis points—as the BoC is expected to adopt a more cautious, gradual approach to avoid disrupting economic stability.

Wednesday, 29 January 2025, 21:00 – Fed Interest Rate Decision

On December 18, 2024, the Federal Reserve reduced its target range for the federal funds rate by 25 basis points, lowering it from 4.50%–4.75% to 4.25%–4.50%. This move was driven by easing inflation, which declined to 1.8% in December, and slower-than-anticipated economic growth. Additional factors included weaker business sentiment and expectations of reduced wage and price growth amid subdued consumer demand. Looking ahead, the Fed is expected to maintain its gradual approach, likely enacting another 25-basis-point cut at its January 2025 meeting. Future rate adjustments will depend on economic developments and the persistence of inflationary pressures.

Thursday, 30 January 2025, 15:15 – ECB Interest Rate Decision (Jan)

In December 2024, the European Central Bank (ECB) reduced its key interest rates by 25 basis points, setting the deposit facility rate at 3.00%, the main refinancing operations rate at 3.15%, and the marginal lending facility rate at 3.40%, effective December 18, 2024. The decision was based on easing inflationary pressures, with headline inflation dropping closer to the ECB’s 2% target. Underlying inflation dynamics also showed signs of slowing, particularly in services and core goods, reflecting lower demand and improved supply chain conditions. Additionally, the ECB cited the effectiveness of previous rate hikes in curbing inflation as a factor for initiating cuts, aiming to support economic activity and prevent a more significant slowdown across the eurozone. For the upcoming release, recent statements from ECB officials suggest a consensus toward further gradual rate cuts, contingent upon economic data. Dutch central bank head Klaas Knot and Bank of Greece Governor Yannis Stournaras also indicated support for additional cuts, citing supportive economic data. Market expectations point to a potential reduction of the deposit rate to 2% by the end of 2025, aligning with the ECB’s neutral rate estimates.