Central bank meetings could steer the FX markets: USD/JPY; GBP/USD; GBP/EUR

[MongiIG]

Kicking us off was a statement from the Australian central bank (RBA) indicating that rate rises may now start to slow.

 

 Jeremy Naylor | Writer, London | Publication date: Tuesday 20 September 2022 

Reserve Bank of Australia

Kicking us off was a statement from the Australian central bank (RBA) indicating that rate rises may now start to slow. AUD/NZD was where this was most felt versus that weak New Zealand dollar. After reading the minutes released overnight, there is no doubt the Reserve Bank of Australia will continue to raise rates, but nonetheless said there was a case for slowing the pace of increases. "All else equal, members saw the case for a slower pace of increase in interest rates as becoming stronger as the level of the cash rate rises."

Then it’s the turn of the Federal Reserve (Fed) with an anticipated 75 basis-point (bps) rise, although an outlying full percentage point hike may be on the cards. At the last Federal Open Market Committee (FOMC) meeting in July, when the Fed hiked interest rates by 75-bps, Fed chair Jerome Powell said that "another unusually large increase could be appropriate" at the bank's next meeting.

US consumer price index (CPI) unexpectedly rose in August, which led the market to wonder if the Fed could hike by more than 75 basis points at its September meeting. The latest market expectations show that a majority still expects rates to rise by 75 basis points, while the latest data shows that 17% see a full percentage point increase.

Thursday sees rate meetings from both the Bank of Japan (BoJ) and the Bank of England (BoE). The BoJ is widely expected to stay ultra-accommodative while the BoE is set for another 50bps rise, keeping a lid on any gains for the pound.

As opposed to the Fed and the European Central Bank (ECB), the BoE hasn't yet opted for a larger, one might say more courageous rate increase of 75-basis points, which is one of the reasons why GBP/USD has fallen some 15% in the past eight months.

In China, the People's Bank of China (PBoC) kept key rates steady at its September fixing. As widely expected, one-year loan prime rate remained at 3.65%, while the five-year rate which is a reference for mortgages, was maintained at 4.3%.