Central Bank

Why the US dollar could benefit from fewer rate cuts than expected following a relatively quiet 2023...

We have a busy calendar with what would usually be ‘red flag’ days, including central bank meetings with the FOMC, BOJ and BOE. There’s a reasonable chance we’ll see no action across all three, but the bigger response for global markets could be if the BOJ widen or abandon their yield curve control (YCC).

The hawkish tone of the RBA’s October monetary policy minutes has caught markets by surprise, seeing the AUD pop higher against the USD and crosses.

NZD/USD's break above 60c ahead of the RBNZ's announced that they held rates at 5.5% again was shortly lived, and momentum has turned decisively lower. Ans there could be further downside to come.

At the most basic level the Fed delivered what was expected; another policy pause with the potential for further hikes. The opening paragraph tipped noted an economy which is “expanding at a solid pace” with a slower but “strong” job growth and elevated inflation. There’s nothing remotely dovish there. And then we look at the numbers…

The US dollar rises as the Fed still expects another rate hike and only two rate cuts next year

With an ECB interest rate decision and three US data points sandwiched in between, we could be in for an interest hour's trade on EUR/USD. And that likely explains why the 1-day implied volatility band is more than twice its 20-day average.

Money supply is directly controlled by central banks of influential countries around the world. Learn how they decrease and increase money supply in this article.

With the FOMC meeting in the rear view mirror, the focus now shifts to Europe where the UK and SNB announce their interest rate decisions.

So the BOJ have indeed been discussing potential tweaks to one of their major policies, although that is not to say any of it will happen soon (if at all) before being scrapped

The USD pulled back yet mostly held on to its post-NFP gains in anticipation of a hawkish speech from Jerome Powell this evening.

The RBA hiked the overnight cash rate by 25bp to 3.35% - its highest level since September 2012 – and warned of further increases in the months ahead.

Whilst money markets favour a 25bp hike tomorrow, we shouldn’t discount the potential for a 15bp or even a 50bp hike.

With the Fed having delivered their 25bp yesterday, it is now over to the BOE ECB today, who are expected to hike by 100bp between them.

Whilst the Fed effectively confirmed two more 25bp hikes to are to follow, Fed fund futures remain unconvinced and are pricing in a single hike to take rates to 5%.

Market pricing and the consensus among economists firmly points towards a 25bp hike from the BOC tomorrow.