Weekly Market Outlook: ECB and Fed meeting minutes. BoC rate decision

BoC forecast to hike rates this week

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The economic data for the week ahead will see the central banks dominating the headlines. The week ahead will see the meeting minutes coming out from the European Central Bank and the Federal Reserve. The meeting minutes covers the monetary policy meeting where the Fed hiked interest rates, and the ECB announced an end to its QE program.

The Bank of Canada will be the first central bank to kick off the new year with its monetary policy meeting. Heading into the meeting, economists forecast that the BoC will hike interest rates by a quarter basis point this week.

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On the economic front, data over the week will see the release of Australia’s retail sales report. China will be releasing its inflation and producer prices index data over the week. From the U.S. the only big ticket release on the economic front will be the monthly inflation data.

Central banker speeches are also due this week. The Fed Chair, Jerome Powell will be speaking this week including the Bank of England Governor, Mark Carney.

BoC likely to hike interest rates this week

The Bank of Canada will be holding its monetary policy meeting this week on Wednesday, 9th January. According to the median expectations, the Central Bank of Canada might hike interest rates by a quarter basis point this week. This would bring the BoC’s interest rates from 1.75% currently to 2.0%.

The rate hike would be the first this year and marks a fifth-rate hike from the Bank of Canada since it started to tighten monetary policy. In 2018, Canada’s central bank hiked interest rates three times. The previous monetary policy meeting from the BoC was in December.

Officials voted to keep the interest rates unchanged but noted that further rate hikes were needed at a gradual pace. The anticipated interest rate hike this week comes as Canada is expected to close out 2018 with a strong momentum backed economic growth.

However, that is likely to change in the coming months as global trade war uncertainty continues. For the most of last year, the BoC was struggling with the uncertainty due to the NAFTA trade deal. However, after agreeing to a new trade with Mexico and the United States, the Central Bank proceeded with rate hikes.

This week’s BoC meeting comes following last Friday’s payrolls report. Data from Statistics Canada showed that the national unemployment rate was steady. However, wage growth remained weak. However, the BoC monitors the wage growth, therefore, the rate hike this week might come out with some dovish forward guidance.

ECB and Fed meeting minutes

Both the ECB and the Federal Reserve will be releasing their respective monetary policy meeting minutes this week. The ECB has held its monetary policy steady in December but announced an end to its QE program.

The ECB signaled that interest rates would remain unchanged for the most part this year. This view is likely to dominate as it matches the recent flash inflation estimates which have turned lower.

For the Fed, the meeting minutes will give further clues to the policy makers deliberations. The Fed signaled that it would hike rates twice this year. So far, that view has been supported by a strong labor market data for December.

Investors will be closely looking at both the meeting minutes in assessing the future of monetary policy guidance from both the central banks. This comes amid concerns that inflation could slow in the coming months due to lower fuel and energy prices.

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