The US FOMC yesterday was shown to change direction to hawks. With the end of bond purchases ahead of schedule, the outlook for rate hikes has been raised to three times next year. After reflexively reacting to the dollar buying, the market leaned toward the weakening of the dollar and the yen along with the movement of risk appetite such as the rise in stock prices. FRB Chairman Powell had previously indicated a hawkish shift in parliamentary testimony, with a period of preparation to avoid shocking the market.
Today, monetary policy announcements by the British Central Bank, ECB, Turkish Central Bank, etc. are occurring one after another. It is the central bank of Turkey whether a turbulent development is expected. The new finance minister is strongly restraining rate hikes, and the central bank has no choice but to obey it. Lira renewed the lowest price in the advance market. The Turkish central bank has been intervening to buy lira in the foreign exchange market, but it has not been able to induce the lira to rise. Today, the main forecast is to cut interest rates from the current 15% to 14%. However, expectations are dispersed from 13% to 15%. If the lowest price is updated, intervention is expected again. I want to be prepared for a fairly volatile price movement.
The British Monetary Policy Committee (MPC) is likely to maintain the status quo of monetary policy. The pace of spread of Omicron strains is unusually fast, and additional vaccination is urgently needed. On the other hand, both UK employment statistics and price statistics are strong, and the situation is such that the rate hike can be justified. In the market, the once-declined rate hike observation is rekindling. While keeping in mind the results of the surprise, I would like to pay attention to the interest rate and the vote split of the members of the asset purchase limit even if it is deferred.
The ECB Board also has a high prospect of maintaining the status quo of monetary policy. Compared to the US, UK and Central Banks, it seems to be more cautious. One point is likely to be whether ECB President Christine Lagarde will continue to recognize that “inflation is temporary.” It will also be interesting to see if there is a change in the perception that there will be no rate hikes next year. In the latest report, ECB officials reported that the inflation rate in 23-24 is expected to be below the ECB target. The market is likely to buy a surprise euro if the content of the hawkish conversion is seen because of the strong image of caution in advance.
Today will be a highly volatile development.
I would like to be cautious about the price movements of EUR and GBP after the announcement.