A Week of Central Bank Decisions Challenges Market Sentiment
A week of central bank decisions challenges market sentiment as the Reserve Bank of Australia (RBA), the Federal Reserve and the Bank of England (BoE) release interest rate decisions and monetary policy statements.
AUD traders are pricing in an interest rate hike from the RBA today. The central bank was expected to increase its key guidance from 0.1 percent to 0.25 percent after dropping the dovish stance taken during the COVID-19 pandemic. The rate hike was higher than expected at 0.35 percent. The inflation rate in Australia hit a 20-year high of 5.1 percent in the first quarter and - while the RBA’s hawks are currently flying lower than the Federal Reserve - monetary policy makers are likely to inch up interest rate guidance until the end of the year.
The Federal Reserve’s meeting is set for today and tomorrow, May 4, amid USD strength. After last week’s disappointing first quarter GDP results, the US central bank faces higher chances of stagflation weighing on the US economy. The Federal Reserve is expected to hike its key interest rate guidance by at least 0.5 percent to dampen inflation and the USD may move depending on how traders react to the central bank’s signals. Like the RBA, the Federal Reserve is expected to keep tightening monetary policy and might start selling its holdings in Treasury bonds as early as this month.
The Bank of England is also due to raise its key interest rate guidance on Thursday, May 5, with a possible impact on the GBP. Traders are already aware that the BoE is set on a hawkish trajectory and the UK faces headwinds from inflation, so part of the impact from the central bank’s decision may already be reflected in the value of the GBP. Still, market sentiment is sensitive to central bank signals and currency traders are keeping a sharp eye on the BoE’s monetary policy statements.
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In commodities trading news, the conflict in Ukraine has kept crude oil spot prices elevated since February, sparking inflationary fires. The outlook for peace talks appears increasingly uncertain, meaning that inflation trends caused by high crude oil prices are set to continue well into the second quarter.
Stock investors have a busy day ahead with first quarter earnings reports from pharmaceutical giant Pfizer amid ongoing volatility in global stock markets. Large caps S&P Global Inc and Airbnb also release Q1 earnings today.
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