Markets will have a busy week of parsing central bank speak, with interest rate decisions from both the US Federal Reserve and the European Central Bank (ECB).

The decisions will highlight the differing economic outlooks on either side of the Atlantic, with the ECB set to reduce borrowing costs for a fifth time while the Fed will leave rates on hold.

The Federal Open Market Committee (FOMC) reduced rates by 25 basis points in December, signalling that there would be just two rate cuts in 2025.

But investors have dialled back their expectations for interest rate cuts in the US over recent weeks, even though there has continued to be progress on inflation.

This is due to fears about the potential inflationary impact of Donald Trump’s economic policies and the continued resilience of the US economy.

“We expect the strength of the economy and uncertainty over immigration and trade policy to prompt the Fed to pause its easing cycle,” Bradley Saunders, north America economist at Capital Economics said.

Figures out the day after the Fed’s meeting are expected to show that the US economy grew at an annualised rate of 2.7 per cent in the fourth quarter.

Given this combination, most traders expect just one cut and some even think there is a chance that the Fed could lift rates again in the coming months.

Chair Jerome Powell will likely face a lot of questions in the press conference about the outlook for rates, particularly given President Trump’s insistence that interest rates should be lower.