Key interest rate decisions this week as economies battle inflation
Last week was quiet on the data-front but this week sees key interest rate decisions from the USA, ECB and Japan. The UK has employment data and a speech from the Governor of the Bank of England as inflation battles continue in the face of diverging paths for the world’s major economies.
Despite only a few statistics last week, the Australian Central Bank raised rates by 0.25% against expectations and admitted the inflation fight was not over and tough times might lie ahead. The Bank of Canada did exactly the same – showing the world that tight labour markets, supply chain issues and inflation have not diminished – it seems that rates will stay higher for longer.
At the same time some very weak data from the Eurozone saw the Euro weaken substantially against its peers.
Even the Bank of Japan which has for years experienced deflation, is now commenting upon the difficult policy decisions ahead – Policy-maker Wakatabe this week saying:
“It’s still too early to call that this inflation has been sustainable and stable.”; “My guess is that at the June meeting, there will be nothing.”
Amid these specific concerns there seems to be a broader-base worry about global economic growth, with China-US tensions, supply chain issues, the Ukrainian war alongside other factors all beginning to weigh on global sentiment.
GBP had a very strong week last week taking GBP/USD to multi-week highs at 1.2575 and GBP/EUR touching 1.1700 for the first time in 8mtnhs.
Expectations of more interest-rate hikes in the UK underpin support for the currency, with another 0.25% rise expected in June. GBP has pushed to multi-month highs recently and if rates continue to rise, it will be a medium-term trend.
Despite this, there is some grim reading in the UK, which for me was highlighted by this headline in Construction news: “Following a dip in April, 42 construction-sector companies entered administration in May – setting a grim monthly record as the highest number since Construction News began publishing monthly administrations data from Creditsafe in January 2020” (SOURCE)
The USD maintains strong upward momentum.
BUT this week traders are expecting NO CHANGE in interest rates from the US Federal Reserve. Markets expected continued ‘hawkish’ comments from the Fed who will almost certainly reiterate that inflation in sticky and labour markets quite tight. This will lead to a pause in raising rates but a statement and press conference that repeats teat inflation has NOT gone away and the Fed will remain vigilant & ready to react.
Important ECB interest rate decision lies ahead this week, with markets expecting another 0.25% rise in rates.
However, this comes alongside very weak German growth, confirmation of 2 quarters of EU negative growth (technical recession) and concern over widening variations in national inflation numbers across the EU member nations. The Press Conference will be very closely watched.
Main Events this week:
· Tuesday: UK employment data / UK Bank of England Speech /EU Inflation (Consumer Prices) / EU Consumer Sentiment / US Inflation Data
· Wednesday: UK production data / US Fed interest rate decision, statement, press conference / NZD GDP data
· Thursday: EUR Interest Rate Decision, press conference / AUD Employment data /China Retail Sales / US Retail Sales
· Friday: JPY Interest rate decision / EUR Consumer prices / US confidence data