<p>We saw the Bank of Canada signal a shift to the sidelines this week but that’s not likely to be the case with the trio of major central banks due to weigh in next week.</p><p>First up is the FOMC decision on Wednesday and the market isn’t pricing in any drama around Powell and the Fed. They’ve strongly signaled a slowdown in the pace of rate hikes and that has the market pricing in a 97% chance of 25 bps and only the slightest tail risk of 50 bps. Given the enthusiasm in markets, I’d put the odds of 50 bps slightly higher.</p><p>The following day features both the ECB and BOE decisions. The ECB is expected to hike rates by 50 bps to 2.50% and that’s priced at 86% but there’s a 14% chance of 75 bps. I think the odds here of 75 bps are too high. There have been so many signals about back-to-back 50 bps moves from the ECB that I don’t see the need to shift.</p><p>Of the three, the BOE is the least certain in terms of market pricing. The rates market sits at 70% for 50 bps and 30% for 25 bps. The market will be looking at the voting here as the uncertainty is high around the future rate path.</p>
This article was written by Adam Button at www.forexlive.com.
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