Weekly Market Outlook – This week is packed with interest rate decisions by the major central banks. The Federal Reserve, Bank of England, Bank of Japan and Swiss National Bank are scheduled to meet this week and announce new policy measures as economic challenges intensify. The Fed is set to mirror the European Central Bank recent 75 bps rate hike, while Bank of England is expected to deliver a 50 bp move. The Swiss National Bank is set to follow the pack and rise rates in an exceptional move by 75 bps.
What to watch on the economic calendar this week:
- RBNZ Gov Orr Speaks
- RBA Meeting Minutes
- CAD CPI Figures
- FOMC Meeting
- BoJ Meeting
- SNB Rate Decision
- BoE Policy Meeting
- Eurozone Flash Services and Manufacturing PMIs
- Fed Chair Powell Speaks
USD – 75bps Hike is Certain, However a Bigger Hike is on the Table!
The FOMC meeting will be the most important event this week as the Fed is expected to deliver the third 75bps rate hike in a row. The higher-than-expected inflation reading for August has cemented expectations for another aggressive move that would lift the fed funds rate to a target range of 3% to 3.25%, and is expected to reach 4% by year-end.
Despite easing for the second straight month, hitting its lowest in 4 months, US annual inflation printed a 8.3% rise in August above market expectations of 8.1%.
According to the FedWatch tool, 80% are expecting a 75bps hike while 18% are anticipating a full percentage point hike.
Investors will also keep a close eye on the updated dot plot, which is expected to reveal whether the Fed members will pursue aggressive rate rises in the upcoming meetings. Also, the press conference by Fed Chair Jerome Powell will be a main event to watch.
On the data front, US markets will be watching the releases of building permits, existing home sales and S&P Global PMI for September.
GBP – Bank of England is Set for Another 50 bps Hike
The Bank of England is widely expected to announce a 50bps rate hike on Thursday, however a 75bps hike is not ruled out and will mark the most hike since 1992. UK interest rates increased by 165bps since December when the bank started this cycle.
The annual inflation eased to 9.9% in the 12 months to August 2022, down from 10.1% in July. However, inflation is expected to take another leap in the coming months while economic data are pointing to a looming recession.
CHF – SNB to Join the Pack and Let go of the Negative Rates
The Swiss National Bank is set to raise interest rates by 75bps to the positive territory for the first time since 2011. For the second meeting in a row, the Swiss National Bank is expected to increase rates following a 50bp increase in June.
Annual inflation unexpectedly accelerated to 3.5% in August, above the SNB’s target of 2%. The bank seems to be less worried about the Swiss franc value which is relatively strong against the Euro, instead the SNB is now focused on the real exchange rate.
With interest rates rising globally and high inflation threatening the domestic economy, the SNB is left with no other option than to increase rates and let go of its long-held loose policy. More hikes in December will be on the table for the SNB.
JPY – BoJ to Stand Pat on Rates, All Eyes on Inflation and Yen’s Value
August inflation figures will be released a few days before the BOJ meeting. Headline CPI is seen at 2.9% while core inflation, which excludes fresh food, is expected to jump from 2.4% to 2.6% . Excluding fresh food and energy, inflation is seen increasing to 1.7% from 1.2% in July.
While no interest rate changes are expected from this meeting, investors will be watching closely for measures to stop the yen from further losses. Short-term interest rate is expected to remain at -0.1%.
The Yen has been trading near its lowest levels in 24 years against the US dollar, as USD/JPY approached the 145.00 handle last week. Japan’s Finance Minister Shunichi Suzuki stated earlier that policy makers would take necessary action if sharp yen falls persisted.
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