Central Bank Decisions Set Market Focus on USD, GBP, JPY and CHF
The strength of the USD is the main thread connecting the central banks’ decisions. The GBP and JPY are weaker against the USD and have been so for several months because the Federal Reserve’s policy has been considerably more hawkish than either the BoE’s or the BoJ’s.
Later today, the Fed is expected to raise its key interest rate guidance from 2.5 percent to 3.25 percent in order to control inflation, but this course has been criticized as adding more recession risks to the US and global economy. Nonetheless, Federal Reserve Chairman Jerome Powell has made it clear that the central bank will not ease up on tightening monetary policy until inflation is closer to the target of 2 percent.
While the broad consensus is for a 0.75 percent interest rate hike from the Fed, there has been some talk in the market about a rise of 1 percent. If this materializes, it may move the USD currency pairs and add to recession pressures after Mr. Powell flagged there would be more inflation pain for the US.
On September 22, the BoJ is expected to maintain its key interest rate guidance at minus 0.1 percent. Market participants are anticipating an intervention from Japan’s central bank because of the decline in the Yen’s value, especially when compared to the USD. So far this has not happened but if the BoJ signals any changes in its dovish policy, this could move the JPY currency pairs.
The BoE continues to fight inflationary fires ahead of another expected interest rate hike for the UK tomorrow, September 22. While inflation declined in August, the level is still close to double digits and the economy is feeling the pressure as growth fell in the second quarter. The central bank is expected to hike its key interest rate guidance from the current level of 1.75 percent to 2.25 percent, but there is scope for a different result and some market participants expect a sharper increase. Any surprises to the upside or downside could move the GBP currency pairs.
Finally for central bank decisions this week, on Thursday, September 22, the SNB is expected to raise its key interest rate guidance from minus 0.25 percent to 0.5 percent. Earlier, the Swiss government cut its growth forecast to 2 percent from 2.6 percent, citing high prices and tensions affecting the energy markets.
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