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It’s a big week for central banks, with decisions from the BOJ, Fed and BOE coming one after the other over a 32-hour period, starting Wednesday morning in Japan (Tuesday evening in the US).
Mechanically, the Bank of Japan is the most uncertain, as it has not clearly indicated what it will do. The market is pricing in a 61% chance of a 10 basis point rate hike and a 39% chance of no move. If the Bank of Japan disappoints, the yen’s recent strength could quickly fade.
The Fed next speaks on Wednesday at 2 p.m. ET. The market is now pricing in just a 5% chance of a rate cut after briefly flirting with a surprise decision earlier this month. The big question is whether the Fed will announce a decision in September, or how aggressively it will do so. I tend to think it will stay on the safe side given all the data available between now and September 18.
Finally, the Bank of England has left the market in limbo by now announcing a rate cut to 59% and a hold at 41%. This would be the first move of the cycle and would run counter to some of Bailey’s recent comments suggesting that UK inflation and wage dynamics are different to other advanced economies.
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