Following the European Central Bank, the focus now shifts to the Federal Reserve, Bank of England, Bank of Japan and Bank of Norway. This week seems to be interesting. The ECB lowered its benchmark interest rate by 25 basis points, and the Fed is expected to begin a cycle of easing on Wednesday. If it does not, it would be a huge surprise for the market. There continues to be speculation on whether the shift will be by 25 or perhaps 50 basis points. At the same time, the market assumes that the Bank of England, Norway and Japan will stabilize the current parameters of their monetary policy.
The beginning of the week brings a weaker dollar and an increase in market probability of a 50 point cut. Currently, it is over 60%, whereas at the middle of last week, it was just above 30%. Nonetheless, I still believe that the Fed will choose a smaller move and wait for further developments. The Euro-dollar opened above 1.1100 today and is currently in direct confrontation with GBPUSD. The “Cable” began to move north again since Thursday and it appears that the downward correction, which began two and a half weeks ago, has ended. If the BoE maintains rates and the Fed lowers them, further increases should continue.
The Bank of Norway and the Bank of England will make their next decisions on Thursday. In both cases, interest rates are likely to remain unchanged, as the inflation risk in both countries remains upward. The decision of the Bank of Norway will probably be rather straightforward as the market is not pricing in any changes. However, the situation in the UK is slightly different. According to Bloomberg, most economists there also do not expect any changes, but the market is pricing in a 25% chance of a cut. Inflation data will be published the day before. A expected increase in the core index could provide additional support for the BoE’s to keep the current level, although recent weak economic data may make the final decision difficult.
The week ends with the Bank of Japan. It’s hard to predict the next steps at this point. In June, when the market assumed that they would adopt a hawkish stance, the institution was disappointing. Then July was expected to be a dull, but the BoJ surprised everyone by raising the cost of money for the first time in many years. Consensus does not anticipate any changes in September despite hearing about the bank’s desire for further tightening. Perhaps decision makers want to wait a little longer after the August disruptions and postpone a decision until the end of the year or early next year. A cycle of rate hikes is still being priced in, as the yen continuously gains in value. Of course, the sharp falls of USD/JPY to below the 140.00 level are also a result of a weak dollar, but the market assumes that a breakthrough in the Bank of Japan’s policy has led to a change in the trend in the yen and the US currency.
Łukasz Zembik, Oanda TMS Brokers
Source: https://ceo.com.pl/tydzien-decyzji-bankow-centralnych-fed-boe-boj-i-norges-bank-92334
