FX Week Ahead: BoJ and FOMC Meetings, BoE expected to hike rates

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The markets look to the next week as it marks the start of a new trading month. Economic data remains on the forefront especially with the US nonfarm payrolls figures due on Friday. Following a weak print in September, investors will be keen to see how many jobs the US economy added.

In the UK, all eyes turn to the Bank of England’s meeting on Thursday. The central bank is expected to hike interest rates by quarter basis point this week. This comes amid a slightly better than expected GDP number.

Elsewhere, the BoJ meeting is also lined up over the week including the FOMC meeting on Wednesday. With a busy week packed with both economic data as well as three central bank meetings, the markets will be kept busy.

Here’s a quick recap into this week’s economic calendar for the currency markets.

Bank of England to hike rates

Officials at the Bank of England this week will be looking to raise the interest rates in the UK. After lowering rates to 0.25% marking a historic low, policymakers are looking to rein in inflation which surged to 3% last month. The decision to hike interest rates by quarter basis point comes as policymakers will have to debate the risks.

Wages in the UK have remained muted, rising on average of 2.1%. However, with inflation pushing higher and standing at a full percentage point above the BoE’s inflation target, the rate hike comes at a risk of further putting a squeeze on the UK households.

Although the preliminary GDP data released last week showed that the UK economy expanded at a pace of 0.4%, which surprised to the upside, growth remains fragile. The Brexit talks that continue to take place took a new turn as both parties are now seen preparing for a no-deal. The British pound remained volatile, and the initial gains on a rate hike speculation remain faded for now.

Busy week for the US dollar

A rather busy week awaits for the US dollar which will see a mix of both economic reports as well as the FOMC meeting. The Federal Reserve’s monetary policy meeting is due on Wednesday. No major changes are expected from the central bank this month. It was only at last month’s meeting that the Fed signaled its balance sheet normalization plan.

Investors will be however looking to the Fed’s forward guidance ahead of the well-communicated intention to hike interest rates in December. Following a rather mixed economic report for September due to the hurricanes, investors will be looking to the Fed.

The week will also see fresh economic reports that will include the ISM’s manufacturing and non-manufacturing PMI. Both measures of activity suggest a pullback after both the indexes rose strongly in September. The main highlight will, of course, be Friday’s payrolls report.

Economists are expecting to see a strong rebound in jobs, upwards of 300k while the US unemployment rate is expected to remain unchanged. Wage growth forecasts are expected to show a muted response.

Bank of Japan expected to remain on the sidelines

Officials at the Bank of Japan are likely to remain on the sidelines with no major tweaks expected. However, following the re-election of Japanese Prime Minister Shinzo Abe, there could be a possibility for the BoJ to tweak its monetary policy stimulus program accordingly.

Inflation will, of course, remain the main talking point for the BoJ officials as consumer prices remain stubbornly low. With the BoE and the FOMC meetings lined up, the BoJ’s event is likely to remain a non-event.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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