Fed, BoE And BoJ Rate Decisions Draw Market Attention

The Federal Reserve (Fed), the Bank of England (BoE) and the Bank of Japan (BoJ) will attract the attention of market analysts, investors and traders as all three of them are expected to announce their decisions on interest rates.

While the US central bank may move forward with a larger than usual cut, UK inflation data published earlier in the morning suggest that the BoE may have to keep its borrowing costs on hold this time. The British pound gained ground against other major currencies right after the report’s release.

In other news, data by Statistics Canada showed that  CPI inflation fell to 2% on a yearly basis in August, surpassing expectations for a 2.1% figure. This is the lowest figure recorded since February 2021 and matches the Bank of Canada target.

Fed Interest Rate Decision

Later in the evening, the Fed’s Open Market Committee (FOMC) will announce its decision on interest rates. Forecasts are split as the CME FedWatch Tool gives a 61% probability of a 50-basis points (bps) rate reduction but a survey by CNBC showed that 84% of respondents see more probable a 25 bps cut.  

Some economists suggest that the US federal debt ceiling debate expected in the last days of September could play a role in the Fed’s decision as the federal government may face funding issues in case a new deal between Democrats and Republicans isn’t struck by September 30th. This would create issues in data reporting, making it hard for the Federal Reserve to cut rates in November. 

Morgan Stanley analysts suggested that “the best case scenario for equities this week is that the Fed can deliver a 50bp rate cut without triggering either growth concerns or any remnants of the yen carry trade unwind—i.e., purely an "insurance cut" ahead of macro data that is assumed to stabilize.” 

BoE Interest Rate Decision

The BoE will be the next central bank to have its board meeting regarding monetary policy on Thursday. The BoE’s Monetary Policy Committee (MPC) is expected to keep interest rates on hold. It should be noted that the BoE lowered borrowing costs — by 25 bps in August, marking the first reduction in more than four years.

A report by ING said that “the tone of the August meeting and subsequent speeches have made it abundantly clear that officials don’t want markets running away with the idea that this is going to be a rapid easing cycle. Markets have taken notice. Not only are investors pricing fewer cuts before the end of this year, but they expect rate cuts to land at a higher level in the UK than the US too. That wasn’t the case before the summer.”

BoJ Interest Rate Decision

On Friday, the BoJ’s board will convene to decide on its interest rates with economists not expecting a change in terms of borrowing costs. Commenting on the upcoming board meeting, Commerzbank’s analysts noted that “the market turmoil in early August following the last rate hike is still too fresh in people's minds. Therefore, I expect the BoJ to stay on the sidelines this week, in part because the Fed will be doing most of the work on USD/JPY, and the JPY has a good chance of falling below 140 per USD this week. Even without a rate hike from the BoJ.”

At its monetary policy meeting in July, the central bank of Japan raised interest rates by 25 basis points and reduced its purchases of the country’s government bonds. A Reuters poll revealed that the majority of economists expect the BoJ to raise interest rates one more time by the end of the year.

UK CPI Inflation Remains Steady In August

According to an Office for National Statistics (ONS) report released earlier today, the UK’s headline inflation remained at 2.2% in August on an annualised basis. The figure was in line with market expectations. 

However, core CPI inflation rose to 3.59% on a yearly basis while services inflation also ticked higher reaching 5.56%. Deloitte’s analysts speaking to The Guardian said that “the big picture in the UK is of receding inflation pressures. While core inflation nudged higher in August, softer wage growth and falling commodity prices suggest that this will reverse in coming months.”

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