Traders this week are paying close attention to whether the Bank of Japan will raise interest rates, as well as when and how much the U.S. Federal Reserve and the Bank of England will cut interest rates. This is related to the recent surge in the yen and the pound and the decline in U.S. short-term Treasury yields. , due to unclear policy and economic growth prospects, the cryptocurrency market may also fluctuate simultaneously.
Here is the central bank’s guidance for action this week:
Bank of Japan
The Bank of Japan will announce its interest rate decision at noon on Wednesday, Taiwan time. Whether to raise interest rates has attracted much attention. The Bank of Japan has rarely adjusted interest rates for many years. There is uncertainty in the market about what actions the Bank of Japan will take this week. Although the latest data shows that inflation is accelerating. , but consumer spending disappointed.
Recent expectations of possible further tightening of policy have caused the yen to rise sharply last week. The yen has risen about 5% against the dollar since July 11, partly because Japan's monetary authorities are suspected of intervening because they are tired of the currency's weakness.
Because the yen is linked to heavily leveraged investments through carry trades (borrowing yen and using it to buy high-yielding assets), this means that wild swings in the yen can quickly ripple through global markets.
Last week, options traders' expectations that the Bank of Japan would raise interest rates surged from 40% to nearly 90% and then stabilized between the two, underscoring the uncertainty in the market. According to the latest Bloomberg survey, the economy Economists are equally uncertain, with only 30% of economists expecting an interest rate hike, but more than 90% of economists believe there is a risk of interest rate hikes.
US Federal Reserve holds FOMC meeting
The U.S. Federal Reserve will announce its interest rate decision at 2 a.m. Taiwan time on Thursday, although the market expects a high chance of no action. However, attention will be focused on whether a signal will be released to cut interest rates in September. Investors will carefully study Chairman Powell’s post-meeting press conference to look for any clues supporting an interest rate cut in September. If the Fed hints at an interest rate cut, it will be in line with market expectations for at least 2 months this year. The expectation of a 1% rate cut is also consistent with the views of economists and swap traders.
The Fed's benchmark interest rate has been held at a range of 5.25% to 5.5% for a year, and for weeks, Fed officials have cited the balance of the labor market and receding inflation, suggesting they see a growing case for a rate cut. The more sufficient, some market observers are even proposing more aggressive easing policies than currently expected.
Former New York Fed President William Dudley believes that the Fed should consider cutting interest rates this week. Mohamed El-Erian, chief economic adviser to Allianz Group, warned that if the Fed keeps interest rates at too high a level for too long, it will Policy mistakes will occur.
Bank of England
The Bank of England will announce its interest rate decision at 7 p.m. Taiwan time on Thursday. The market is still divided on whether the Bank of England will announce the first interest rate cut since the epidemic and lower interest rates from the current 5.25%. However, no matter what the outcome, the decision is likely to be positive. The trend of bonds and sterling will have an impact. Expectations of interest rate cuts will boost British government bonds, but will be detrimental to sterling because it will reduce the attractiveness of its carry trade.
Those who support the interest rate cut believe that inflation has fallen back to the central bank's 2% target and the unemployment rate has increased. However, those who oppose the interest rate cut believe that service industry prices are still at high levels, the economy has just rebounded from a slight recession, and wage increases have also brought about inflation. Since the July election, three hawks on the Bank of England's Monetary Policy Committee have put forward reasons for opposing easing policy, while only one dove has put forward the opposite view.
Interest rate swap pricing shows that the probability of a 1-digit rate cut this week is about 50%, but two rate cuts this year are almost certain. Economists believe that the Bank of England will cut interest rates, and Bank of America, Deutsche Bank, Nomura Holdings, and ING expect Six policymakers will support a rate cut, and Bloomberg Economics also expects a rate cut.
