Traders will be watching closely for any 'dovish' comments from central banks this week to decide what bets to place in preparation for next month's interest rate decisions. It's widely anticipated what the Fed & BoE will do today/tomorrow and so the focus turns to the future state of the respected currencies.
A 'dovish' monetary policy stance sees imminent lower interest rates ahead. Lower rates are used to boost the economy as money is cheap to borrow and it's unprofitable to save.
A 'hawkish' view would be to have higher interest rates to mainly control inflation, as it makes for a good saving environment and a bad borrowing one.
Both the Fed & BoE up until now have stood firm at the 'higher rates for longer' route, whereas the ECB are close to finishing there dovish interest rate path. Meaning in theory, the Euro should increase in value against both the GBP & USD once the UK & US central banks start cutting rates (divergence).
The Fed are in the spotlight mainly due to President Trump's pressure to lower rates, so it will be interesting to see if Fed Chair Powell wants to fight or resist the government's 'involvement'.
For the BoE it's much trickier. Inflation is sure to rise in the months ahead, so higher rates may be needed. However, the economy continues to flat-line and lowering rates would provide much needed stimulus.
An interesting theory of what might happen tomorrow has been pointed out today by the research firm, Pepperstone. Half of the members of the MPC are giving speeches in the next few days, an extremely rare event. Usually there would be one or two speeches and maybe 5/6 over a period of weeks.
So could a 50bp cut be coming from the BoE tomorrow or maybe none at all? Either way, any deviation from what is expected would certainly create £ volatility..
|
Twitter
Facebook
linkedin
Google
