A Week in the Market: Several Decisions of CBs (19 September – 23 September)
This week will provoke a surge in volatility because a series of interest rate increases by several Central Banks is coming. The USD is most likely to continue its victorious advance.
Growth of consumer prices in the US is continuing. Today investors consider the probability of an increase in the interest rate by 100 base points at once as 20%. This will, no doubt, shock the markets and send the USD to new highs. The decision will be announced on Wednesday. Market reaction to a smaller increase in the interest rate will depend on Jerome Powell's comments about the next increase to follow in November this year. Growth of the rate by 75 base points is accounted for by the market.
Regardless of inflation growth in Japan, it remains low compared to other countries, which does not let the CB change its excessively soft credit and monetary policy. On Tuesday, a revised base CPI for August will be presented. It is forecast to have grown from 2.4% to 2.7%. This is what the Central Bank will be looking at. Most probably, even a serious change in this index will not make the Bank of Japan take any measures as currency interventions remain the preferred instrument. Only the decline of the JPY is what makes investors worry.
3.5% inflation does not let the National Bank of Switzerland act too aggressively. Market participants consider growth of the interest rate by 75 and 100 base points equally possible, but whatever the decision, the age of negative rates will be over on Thursday. Unlike other currencies, the CHF looks quite strong against the growing USD.
An increase in the interest rate by the BoE can stop the British pound falling and help the compromised economy. The meeting of the BoE is scheduled for Thursday. There is a view that only growth by 75 base points will help, slowing down negative trends. However, the probability of such an abrupt increase is really small, which means the GBP will see new lows.
Inflation report for August will attract the attention of market players. Anyway, markets do not expect any serious growth of the rate from the Bank of Canada at the next meeting. Even the forecast change in the CPI in August to 0.9% will not make the CB act more aggressively. And this means the CAD will continue going down a bearish trend for some time.