Conflict & Slowing Growth Cloud a Big Week for Central Banks.
Summary
The Federal Reserve, Bank of England and ECB all announce rate decisions this week, with all three widely expected to hold as the Middle East conflict keeps inflationary risks elevated
A sharp downward revision to US Q4 2025 GDP and above-target PCE inflation released last Friday leave the Fed with little room to manoeuvre
UK monthly GDP showed no growth in January, keeping pressure on the Bank of England ahead of Thursday's decision
Ceasefire talks between the US, Israel and Iran were rejected by both sides as recently as 14 March, keeping oil markets on edge
Three major central bank decisions in the space of 24 hours make this one of the most consequential weeks of the year for currency markets, arriving at a moment when the economic picture across the US, UK and Eurozone is far from clear.
The Federal Reserve meets on Tuesday and Wednesday, with the rate decision due Wednesday. The Fed is widely expected to hold rates steady. Last Friday's data complicated the picture considerably. The second estimate of Q4 2025 GDP was revised sharply lower, and January PCE inflation, the Fed's preferred measure, came in above target with core prices rising further still. Slowing growth alongside persistent inflation leaves the Fed with limited room to act in either direction. US PPI for February is also released Wednesday, ahead of the decision.
The Bank of England announces its decision on Thursday. Rates have been held at 3.75% since February, when the vote to hold was tight. Over 85% of economists surveyed by Reuters expect the MPC to hold again this week. UK monthly GDP was flat in January, domestic inflation remains above the 2% target at 3.0%, and the inflationary pressure from elevated energy costs has shifted expectations firmly away from a cut. The tone of the MPC's guidance on future easing will be closely watched.
The ECB also decides on Thursday. The conflict has removed any remaining case for a cut at this meeting, with some market pricing briefly reflecting the possibility of future hikes before settling. The ECB will publish updated economic projections alongside the decision, and any revision to the Eurozone's inflation or growth outlook will attract close attention from markets.
The conflict between the US, Israel and Iran shows no sign of resolution. As of 14 March, ceasefire mediation efforts by Oman and Egypt had been rejected by both Washington and Tehran. Iranian officials have asserted continued control over the Strait of Hormuz and oil prices remain elevated, adding an energy risk premium that none of the three central banks can ignore in their assessments this week.
Events to Watch This Week
Wednesday 18 March: US PPI; Federal Reserve interest rate decision
Thursday 19 March: Bank of England interest rate decision; ECB interest rate decision
Three of the world's most influential central banks speaking within 24 hours of each other, against a backdrop of an unresolved military conflict, creates real potential for sharp moves across major currency pairs. Businesses with upcoming international transfers should not leave their exposure unmanaged. Contact the Orbis dealing team to discuss your position and timing.
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