Markets Cautious Ahead of Fed, BoE Interest Rate Decisions
The week is full of interesting financial events as the US Federal Reserve (Fed) and the Bank of England (BoE) are going to follow the Bank of Japan (BoJ) in announcing their decisions on rates. According to economists’ forecasts, both banks are likely to keep rates on hold.
In Japan, Chief Cabinet Secretary Hirokazu Matsuno said that he wouldn’t rule out any steps to respond to disorderly FX moves, stressing that rapid FX moves are undesirable.
The International Monetary Fund (IMF) suggested that further monetary policy tightening by the Reserve Bank of Australia (RBA) may be needed to bring inflation to target range by 2025. IMF’s economists noted that the Australian economy remains resilient and urged the government to plan public investment projects in a more coordinated way that would support the RBA’s efforts.
In China, the Caixin/S&P Global manufacturing PMI fell to 49.5 in October from 50.6 in September, dropping below the 50.0-point mark that separates growth from contraction. Commenting on the figure, economists told Reuters reporters that the Chinese economy suffers from weak demand as well as internal and external uncertainties.
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Fed Interest Rate Decision
The Fed’s Federal Open Market Committee (FOMC) will announce its decision on interest rates later today. The CME Fedwatch Tool gives over 99% probability for the Fed to keep rates on hold. Despite the fact that headline inflation remains above the 2% target and has remained for quite some time, the Fed’s board will likely refrain from taking action in order to evaluate the effect of its monetary policy.
It should be noted that the Fed has raised rates 11 times in the last few months, leading to the quickest policy tightening recorded in almost 40 years. The Fed’s head, Jerome Powell, has implied that rates will stay higher for longer and has not ruled out the possibility of one more hike until the end of 2023.
Bank of England Interest Rate Decision
On Thursday afternoon, the BoE will join the group of central banks that have announced their interest rate decisions. Market analysts expect the BoE’s Monetary Policy Committee (MPC) not to raise borrowing costs as a Reuters poll among economists has shown.
A Financial Times report citing analysts at Oxford Economics said that “inflation remains uncomfortably strong” while MPC members have said that monetary policy would have to remain tight for some time in response to the elevated prices environment. Inflationary pressures are also boosted by wage growth figures unseen since 2001. Economists polled by Reuters suggest that the BoE won’t lower interest rates until at least July 2024.
US Nonfarm Payrolls October 2023 Report
Friday will be the US Nonfarm Payrolls day when most market analysts will be eager to get a glimpse of the country’s labour market condition. Analysts expect the NFP figure to come in at 172,000, significantly lower than the 336,000 figure recorded in September. However, it should be noted that the NFP reports have occasionally surprised global markets in the last few months.
With the unemployment rate standing at 3.8%, economists will scrutinise the report by the Bureau of Economic Analysis (BEA) to see if the labour market is cooling down as a result of higher than usual interest rates.
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