Fed, BoE And BoJ Decide On Interest Rates: What To Expect

Traders who trade major currencies such as the US dollar, the British pound and the Japanese Yen are in for an interesting week as the Federal Reserve (Fed), the Bank of England (BoE) and the Bank of Japan (BoJ) will announce their interest rate decisions.

Let’s see what the latest updates are and how they could impact currency exchange rates in the next few days.

Fed Rate Cut Dilemma: 25 Or 50 Bps Reduction?

In the evening of September 18th, the Fed’s governing board will announce its much awaited interest rate decision. Some economists suggested that the Federal Open Market Committee (FOMC) policymakers may face a dilemma, trying to decide whether a 25-basis points (bps) or a 50-basis points rate cut would be in line with the central bank’s monetary policy targets.

According to the CME FedWatch Tool, there is almost a 60% probability of a half percentage point rate reduction (at the time of writing). If the Fed proceeds according to this forecast, it will mean that its policymakers aim to give a boost to the US economy that seems to be struggling based on the latest jobs and productivity batches of data.

JP Morgan analysts speaking to CNBC said that “we’re entering a cutting phase. We have all the ingredients for the beginning of a fairly extended cutting cycle but one that is probably not associated with a recession — and that’s an unusual set-up. It means that we get a lot of volatility to my mind in terms of price discovery around those who believe that actually the Fed [is] late, the ECB [is] late, this is a recession and those, like me, that believe that we don’t have the imbalances in the economy, and this will actually spur further upside.”

BoE To Hold?

The BoE will be the next major central bank to review its borrowing costs and announce its decision on Thursday afternoon. However, it is unlikely that the UK’s central bank will follow the Fed to its monetary policy easing cycle this time.

A Reuters report, published on September 13th, showed that “all 65 economists in a Reuters poll said the BoE will likely hold rates at 5.0% on Sept. 19, after cutting from a 16-year high of 5.25% in August.” However, some market analysts suggested that a rate cut of about 25 basis points could be highly likely to take place in November’s Monetary Policy Committee (MPC) meeting.

It should be noted that the Office for National Statistics (ONS) is scheduled to release the August CPI inflation report on Wednesday, just a day before the BoE interest rate meeting. Elevated service inflation figures and wage growth continue to pose risks to a resurgence in inflation.

BoJ’s Council To Assess The Situation

Japan’s central bank is one of the few central banks that has actively sought to increase interest rates in a time that most banks try to do exactly the opposite. Nevertheless, market analysts do not expect the BoJ’s governing board to alter its monetary policy in the upcoming Friday meeting.

The Japanese yen that suffered earlier in the year against the US dollar has appreciated in the last few weeks, giving the central bank the bonus of spare time when it comes to monetary policy adjustments. However, economists believe that actions related to new policy tightening won’t be late.

Societe Generale’s economists told MarketWatch that “the BoJ’s next move will be to hike rates but not this week. Frankly, with CFTC data showing that from huge shorts the futures market has now built up its biggest yen long since 2016, they really don’t need to add any more fuel to the fire. The yen is rising so fast it’s taking AUD, NZD and CNH with it, and isn’t hurting the euro either.”

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.