News traders, huddle up!
We’ve got three major central bank statements lined up for the week so better start prepping on why each event matters, what happened before, and what’s expected this time.
Lucky for you, I’ve got all these and more in this neat roundup.
1. Bank of Japan (Jan. 31, Asian session)
First up, we’ve got BOJ Governor Kuroda and his fellow policymakers gearing up for their interest rate statement in tomorrow’s Asian trading session.
Now this one is bound to get interesting because market watchers got wind of reports indicating that the Japanese central bank got busy ramping up its purchases of 5-year and 10-year bonds last week, causing yields to drop sharply.
This follows their decision to skip bond-buying in shorter maturities, which caused a brief spike higher for yields.
Recall that the BOJ is currently implementing QQE with yield curve control (No, that ain’t the name of some fancy beauty product.
Under the new framework, the central bank has stated that “the pace of increase in the monetary base may fluctuate in the short run” which pretty much means that the BOJ can do whatever it pleases.
The latest economic figures from Japan show a bit more red than green, as headline CPI printed its first negative reading in five months while the trade surplus shrank to its 3-month low in December due to slower exports.On a less downbeat note, businesses and consumers seem to be feeling chipper so there’s room for a rebound in manufacturing and spending, probably enough to keep the BOJ sitting on its hands for the time being.
Because of that, analysts expect the BOJ to raise growth forecasts for the next few years to factor in improving economic prospects.
Yen traders are also on the lookout for Kuroda’s take on Trump’s policy decisions, particularly when it comes to trade agreements and how these could affect global bond yields.
2. U.S. Federal Reserve (Feb. 1, 7:00 pm GMT)
The month of February should be off to an exciting start with the U.S. central bank scheduled to announce its first policy statement for 2017. This follows their decision to hike interest rates in December last year and signal that there’s room for three more rate increases in the coming months.
Keep in mind that there have been some changes in the FOMC recently as new voting members are on board, which could trigger a shift in the committee’s overall bias. So far, most of their speeches have confirmed that rate hikes could still be on the table but a lot hinges on how the Donald runs things.
And now that Trump has had a few days in the Oval, policymakers might have more insight on how they can adjust monetary policy to prevent the economy from overheating while ensuring that the latest improvements are sustained.
For now, no actual policy changes are expected as dollar bulls appear to have set their sights on March for the next rate hike. If the tone of their upcoming statement seems to support this view, the Greenback could be poised to make a strong comeback on this hawkish bias.
3. Bank of England (Feb. 2, 12:00 pm GMT)
Last but certainly not least is the BOE, which will have its Super Thursday on, well, Thursday. The reason this is “super” is that the Inflation Report and MPC meeting minutes will also be released then, so forex junkies have a lot to digest when it comes to understanding the U.K. central bank’s monetary policy plans.
As with the BOJ and Fed, no actual policy changes are expected for the time being but traders are keen to find out how the latest Brexit updates have influenced the BOE’s bias.
Recall that Prime Minister Theresa May has conceded that they might need to give up access to the single market in exchange for immigration controls, the Supreme Court has ruled that Parliamentary approval is necessary before invoking Article 50, headline CPI hit a two-year high of 1.6%, and the preliminary GDP printed stronger than expected Q4 growth. Phew!
In a nutshell, it looks like the economic weather is looking less dreary than it used to for the U.K. so Governor Mark Carney could pick up on this improved outlook as well.
The weak pound has worked in the economy’s favor by keeping a lid on price levels and boosting consumer spending so the central bank might not need to draw from its easing arsenal in the near term.