View of the Week-BoJ, BoE and Fed to steal the macro show
July 29 (Reuters) -The focus for markets is on monetary policy this week with the Bank of Japan, Federal Reserve and Bank of England due to meet.
Out of the three policy meetings it will be the BoJ and BoE that are the close calls.
In Japan, the risk of a rate hike has been growing and with 7bps of tightening priced in 0#BOJWATCH there is room for a surprise. Recently, political pressure has increased on the BoJ to clearly indicate its rate path amid concerns over a weak yen. This somewhat lowers the bar for the BoJ to hike.
Meanwhile, with the bank’s next policy meeting during the middle of LDP’s presidential election in September, this may be another reason to hike this week instead of waiting until the October meeting. In any case, the decision is a close call and for now, the risks lean towards no change.
The BoE meeting will be another finely balanced decision. Despite stubborn services inflation at 5.7%, which remains firmly above the central bank’s forecast of 5.1%, markets continue to favor a 25bps rate cut. With commentary from policymakers on the quiet side, predominantly due to the bank’s self-imposed blackout during the UK election campaign, it has been difficult to assess whether there will be enough votes for a cut.
Those who have spoken leaned hawkish, the most surprising of which was Chief Economist Huw Pill, who continued to flag signs of inflation persistence within services CPI and wage growth. However, he did opine that it was still an open question whether the timing for a rate cut was now.
That said, the June meeting minutes did highlight that for some members who voted to leave rates unchanged, the decision was finely balanced. With this in mind, we can assume this was from the internal members – with the exception of Huw Pill – who have typically leaned dovish and thus may lead to a potential 5-4 vote split in favor of a cut.
Finally, few surprises are likely from the Fed with a rate cut fully priced in for September. If anything, this week’s meeting will likely be a placeholder to tee up a September move.
For more click on FXBUZ
BoE rate cut probability https://tmsnrt.rs/3Ws4dyE
boj watch today pricing https://tmsnrt.rs/3yq1kq4
(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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