Fed policy decision Wednesday.

The Euro-Zone recorded a 0.1% GDP increase for the fourth quarter of 2022 compared with expectations of a 0.1% decline. There was, however, a slowdown in annual growth to 1.9% from 2.3%.

US consumer confidence declined to 107.1 for January from an upwardly revised 109.0 the previous month and below expectations of 109.0. Although there was a net improvement in the current conditions index, this was offset by a dip in expectations with consumers also less confident over the labour-market outlook.

The employment cost index increased 1.0% for the fourth quarter, marginally below consensus forecasts of a 1.1% increase and below 1.2% previously. Although the data was close to expectations there were hopes over an easing of wage pressures.

The employment cost data helped trigger a rebound in Wall Street sentiment with equities posting significant gains which also helped underpin global confidence.

The latest UK data recorded a further sharp decline in mortgage approvals to 35,600 for December from 46,200 the previous month and well below consensus forecasts of 45,000. Excluding the immediate pandemic period in 2020, this was the lowest level since the beginning of 2009.

The dollar secured net gains into Tuesday’s New York open, but failed to hold the gains with some month-end US selling as well as solid Euro buying on dips.

The Federal Reserve will release the latest policy statement on Wednesday with strong expectations that the central bank will slow the pace of rate hikes to 25 basis points which will take the Fed Funds rate to 4.75%.

Forward guidance in the statement and rhetoric from Chair Powell will be crucial elements for asset prices.

The latest US ADP data and ISM manufacturing data will also be important releases for sentiment towards the economy ahead of the Fed policy decision.

The latest Euro-Zone inflation data will be released on Wednesday with estimated data for Germany.

The headline rate is forecast to decline to 9.0% from 9.2% with the underlying rate at 5.1% from 5.2% in December.

The Euro lost ground into Tuesday’s New York open with no support from the GDP data, especially after a dismal German retail sales report. EUR/USD dipped to lows fractionally above the 1.0800 level. The dollar lost ground after the US open with some selling after the wages data. Lower US yields and month-end selling also hampered the US currency. EUR/USD moved back above the 1.0850 level and traded around 1.0870 on Wednesday.

There was further choppy yen trading with some USD/JPY support below 130.00 and it settled around 130.25 on Wednesday.

The Swiss franc regained ground on position adjustment and uncertainty over central bank policy decisions. EUR/CHF dipped back below parity with USD/CHF sliding to lows around 0.9165.

Sterling was undermined by weaker housing data, the downbeat IMF forecast and expectations of dovish bank of England guidance. GBP/USD dipped to just below 1.2300 before stabilising above this level with EUR/GBP advancing to 0.8825.

Commodity currencies recovered from intra-day lows to nudge into positive territory. AUD/USD recovered to above 0.7050 from 0.6985 lows and edged higher to 0.7075 on Wednesday despite disappointing Chinese data.

Canadian GDP was in line with expectations. USD/CAD still dipped sharply to 1.3300 from 1.3470 highs before settling around 1.3310.

Economic Calendar

13:15ADP Non-Farm Employment Change176k235k
15:00ISM Manufacturing PMI48.048.4
19:00FOMC Statement
19:00Federal Funds Rate4.75%4.50%
19:30FOMC Press Conference

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.