Major Central banks set to make key decisions

Anticipation Grows as Major Central Banks Prepare to Make Key Policy Decisions

In the upcoming week, investors worldwide will be closely monitoring three pivotal central bank announcements.

The Federal Reserve is set to unveil its policy verdict on Wednesday, followed by the Bank of England (BoE) on Thursday, and the Bank of Japan (BoJ) on Friday.

Additionally, the Swiss National Bank, the Norwegian Central Bank, and the Swedish Central Bank are scheduled to disclose their latest policy stances on Thursday.

As per consensus forecasts, the Federal Reserve and the Bank of Japan are expected to maintain their current policies, while the Bank of England is anticipated to implement a 25 basis point rate hike.

Should these decisions align with market expectations, significant attention will turn to the central banks' statements on inflation and their forward guidance.

Furthermore, the trajectory of oil prices will hold significance, particularly given that global benchmarks are currently trading at their highest levels in ten months.

The surge in oil prices is likely to exert short-term upward pressure on headline inflation, and policymakers will be cautious about the potential impact of elevated energy costs on core inflation.

The Bank of Japan remains a point of uncertainty, especially in light of comments from Governor Ueda, which have fueled expectations of a potential policy shift later in the year.

In the run-up to these central bank announcements, market activity is expected to be dominated by consolidation and position adjustments.

GBP

The Pound showed strength at the beginning of the European trading session on Friday. However, it faced resistance just below the 1.2450 mark in its exchange rate against the Dollar (GBP/USD).

As the day progressed, fresh selling pressure emerged, causing GBP/USD to gradually decline to reach a new low for the past three weeks at 1.2380.

The decline in global stock markets had a negative impact on the Pound, particularly due to a dip in Wall Street, although the FTSE 100 index remained relatively resilient.

The Bank of England (BoE) is scheduled to announce its decision on interest rates later this week. Market consensus suggests an additional 25 basis-point rate hike, taking it to 5.50%.

However, there are expected divisions within the committee, and assuming rates are indeed increased, the Pound's response will depend significantly on the evidence regarding whether interest rates have reached their peak.

In the short term, the adjustment of positions leading up to the BoE decision will play a pivotal role. Caution is expected, especially since the latest UK inflation data is set to be released on Wednesday.

On Monday, GBP/USD traded just below the 1.2400 level, maintaining relatively tight trading ranges. Nevertheless, it is prone to a gradual decline as long positions are trimmed.

EUR

On Friday, European Central Bank (ECB) officials took a stance against the market's anticipation of a potential reduction in ECB interest rates.

As per President Lagarde's statement, "We have not made any decisions, held discussions, or even mentioned rate cuts."

The Euro managed to avoid additional selling pressure on that day. Still, the Euro to Dollar (EUR/USD) exchange rate encountered difficulties in making progress, remaining stagnant around the 1.0660 mark without any attempts to breach the 1.0700 level.

Unless there are clear signs of an economic resurgence in the Eurozone, it will be challenging to alter market expectations regarding potential ECB interest rate cuts in the coming year.

Confidence in the Eurozone and the Euro, in general, is expected to remain fragile, reflecting concerns about the economic outlook.

Moreover, close attention will be paid to the economic trends in China, as they can significantly impact the Eurozone economy.

At this juncture, it's conceivable that the Euro may consolidate, but a substantial recovery appears unlikely.

USD

In September, the US New York manufacturing index showed a remarkable improvement, surging to 1.9 from the previous month's -19.0 reading. This result significantly exceeded consensus expectations of -9.9 and indicated a slight increase in inflationary pressures.

Industrial production data for August also outperformed expectations, posting a 0.4% rise.

However, there was a minor dip in the University of Michigan consumer confidence index.

In terms of inflation expectations, the 1-year index decreased from 3.5% to 3.1%, while the 5-year index retreated from 3.0% to 2.7%.

These figures in inflation expectations should provide some comfort to the Federal Reserve (Fed).

Anticipations for a Fed interest rate hike in November dipped to approximately 27%.

Nevertheless, the US dollar maintained its robust stance as US bond yields advanced during the day.

The dollar index reached nearly six-month highs, with only a slight pullback during the day and minimal movement on Monday.

The combination of robust economic data and reduced inflation expectations reinforced the perception of US economic outperformance on a global scale, bolstering the US currency.

A notable aspect in the market was the continued difficulty in finding compelling reasons to sell the dollar, especially given the lack of confidence in other major currencies.

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Data for the week ahead

Monday

09.00 EUR ECB's De Guindos Speech

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Tuesday

01.00 AUD RBA Meeting Minutes

12.30 CAD BoC Consumer Price Index

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Wednesday

06.00 GBP Consumer Price Index

18.00 USD Fed Interest Rate Decision

18.00 USD Fed's Monetary Policy Statement

18.00 USD FOMC Economic Projections

18.30 USD FOMC Press Conference

22.45 NZD Gross Domestic Product

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Thursday

07.30 CHF SNB Interest Rate Decision

11.00 GBP Bank of England Minutes

11.00 GBP Bank of England Interest Rate Decision

11.00 GBP Monetary Policy Summary

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Friday

05.00 JPY Bank of Japan Interest Rate Decision

06.00 GBP Retail Sales

07.30 EUR German HCOB Composite PMI

07.30 EUR German HCOB Manufacturing PMI

07.30 EUR German HCOB Services PMI

08.00 EUR HCOB Composite PMI

08.00 EUR HCOB Manufacturing PMI

08.00 EUR HCOB Services PMI

08.30 GBP S&P Global/CIPS Composite PMI

08.30 GBP S&P Global/CIPS Manufacturing PMI

08.30 GBP S&P Global/CIPS Services PMI

13.45 USD S&P Global Composite PMI

13.45 USD S&P Global Manufacturing PMI

13.45 USD S&P Global Services PMI

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