FX Update: ECB and BoE ready to press pause, USD rebounds. FX Update: ECB and BoE ready to press pause, USD rebounds. FX Update: ECB and BoE ready to press pause, USD rebounds.

FX Update: ECB and BoE ready to press pause, USD rebounds.

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The Bank of England and ECB meetings were both dovish surprises as the two banks are seen looking for an excuse to pause their tightening regimes, in the ECB’s case after a further 50 basis point hike in March, and in the Bank of England’s case, ASAP. The US dollar rebounded sharply as the FOMC meeting suddenly looked less dovish by comparison. A test of the dovish central bank narrative today with the January US jobs report and ISM services on tap.

Today's Saxo Market Call podcast
Today's Market Quick Take from the Saxo Strategy Team

FX Trading focus: The BoE and ECB surprise dovish. USD resets.

The Bank of England and ECB both surprised on the dovish side yesterday. First the BoE: as expected, it raised the rate by 50 bps to 4%, with a vote of 7-2 as two of the usual doves favoured keeping the rate unchanged. The Bank eased up on its forward guidance, saying that further policy tightening “would be required”, but only “if there were to be evidence of more persistent [inflationary] pressures” and preceding all of that language touting “considerable uncertainties” in the outlook. The previous language was more direct on the need to continue hiking. In setting pre-conditions for another rate hike, the bank strongly suggests it is looking for reason to pause its tightening cycle after yesterday’s decision. This was a dovish surprise, prompting the market to punch UK 2-year yields some 25 bps lower and 10-year yields a massive 30 bps lower. At the same time, the Bank of England is looking for goldilocks outcomes for growth and inflation, raising the GDP forecast up to a mild recession of –1% peak-to-trough versus –2.9% previously, with unemployment seen peaking at 5.3% versus 6.0% previously. The accompanying MPR saw a downgrade to the 2023 inflation forecast to 4.0% from 5.25% with inflation of just 1.5% next year. The Bank of England seems very impressed with what it delivers and is likely over estimating the impact of its policy tightening. Either its inflation forecast or its growth forecast will prove woefully optimistic (i.e., if inflation does indeed achieve 1.5%, it could likely only be in the context of a crushing recession) or both!

The ECB development was in a similar dovish vein and with very hawkish expectations ahead of the meeting, the ECB already had a high bar to surprise hawkish. While the European Central Bank raised rates by 50 bps to 2.50% and somewhat oddly committed to another 50 bps rate hike in March, the statement said that at the March meeting, the ECB will evaluate the subsequent path of its monetary policy. This sent out a message that the most hawkish G10 central bank currently may also be looking at stepping down its pace of rate hikes, while the pre-committing to another 50 basis points in March was likely an effort to corral the hawks on the Governing Council. At the presser, Lagarde attempted to stress, somewhat similar to the Fed’s “higher for longer” guidance, that rates would stay at high levels, but the market is pricing the ECB to roll over with rate cuts in 2024 as well, if at a later date and with less amplitude than the Fed. Markets sharply marked down the market pricing for 2023 with around 25 bps of ECB tightening taken out. Reuters sources later noted that ECB policymakers see at least two more rate hikes, with an increase of 25 bps or 50 bps in May, but German 2-year yields still ended the day 18 bps lower and the 10-year Bund yield slumped 20 bps.

In reaction to the above, the US dollar has reset higher, essentially wiping out the FOMC reaction to nil in the case of the EURUSD, while sterling has lurched lower versus both the US dollar and the euro, as GBPUSD cuts back into the range that extends well below 1.2000, while EURGBP has now broken higher, with only the extremes of the trading range during the PM Truss-wipeout providing upside resistance. The ability of the US dollar to follow through broadly higher will depend on whether US data proves more resilient than expected and leads to a reheating of inflation fears and forces the market to revisit its expectations from the Fed and/or in general, whether risk sentiment can continue to melt-up after the wild extension of the last couple of days, or is set for a reversal. In that light, strong data surprises in either direction today from the US will offer a compelling test of the narrative.

GBPUSD has lurched to new local lows after the long period of trading bottled up in the 1.2275-1.2450 range as the Bank of England clearly wants to pause its rate tightening regime and forecasts inflation to collapse to well below 2.0% next year. The natural focus lower is the round 1.2000 level, but more significant technically are the 1.1950 area 200-day moving average and then the pivot low from earlier this year just below 1.1850.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
Quite a hefty change of pace after yesterday’s action, as the USD weakness violently reversed, while the JPY maintained altitude on the sharply falling yields in Europe. It would take quite some doing to work the greenback into a positive trend, however. Elsewhere, the sterling downtrend has picked up pace and EURGBP, one of the two key sterling pairs, is in new territory post-PM Truss wipeout.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Compelling to watch USD pairs over the next few sessions for a significant consolidation after the remarkable 13-week up-trend in EURUSD, the most extensive of all the USD trends, but nearly matched by gold (huge bearish reversal yesterday) USDJPY and USDCHF. GBPUSD looks the first major USD pair to have a look at tilt lower after the troubled Scandies SEK and NOK have already wobbled into downtrends versus the greenback.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1215 – UK Bank of England’s Huw Pill to speak
  • 1330 – US Jan. Change in Nonfarm Payrolls
  • 1330 – US Jan. Unemployment Rate
  • 1330 – US Jan. Average Hourly Earnings
  • 1445 – US Jan. Final S&P Global Services PMI
  • 1500 – US Jan. ISM Services


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.