Following yesterday’s US FOMC, today the Bank of England and the ECB will announce their monetary policies. The FOMC raised interest rates by 50 basis points, as many expected. The pace eased after four consecutive 75 basis point hikes. However, this has already been factored into the market. The key terminal rate level was raised to 5.125% by the end of next year from members’ forecasts. Interest rate levels are expected to fall in 2024. With inflation slowing down, it seems that it has become easier to paint a picture of policy interest rate trends in the United States.
On the other hand, what about the UK Monetary Policy Committee (MPC) and the ECB Governing Council today? Both the Bank of England and the ECB are centered on expectations of a 50 basis point rate hike at today’s meeting. The outlook is stable in terms of interest rate differentials with the US. However, terminal rate observations remain unclear.
Looking at the current pricing in the money market, the Bank of England is expected to peak at around 4.57% in August-September next year. The ECB is expected to peak out at the 2.80% level in June-September next year. Compared to the view that the US FOMC will peak out around May next year, the timing will be delayed considerably.
It will be interesting to see if we can get any hints about the level of the terminal rate at both meetings today. It is highly likely that the outlook for interest rates will remain uncertain as inflation peaks out. In that case, there may be dollar selling pressure.
With regard to the Bank of England, the split in the votes of each committee member on the extent of the rate hike is likely to become a hot topic. It is pointed out in the market that the content may be left unchanged or divided into 25bp, 50bp and 75bp. If a 50bp rate hike is given as 5 votes, it seems that there is an observation that there will be 2 votes each for the top and bottom.
As for the ECB, as suggested at the last board meeting, it is expected that the outline of the QT plan will be announced. It is expected to start early next year. In this regard, speculations are flying around in the market. Interest rates and bond sales are very different, but they all have the same effect of tightening monetary policy. There seems to be a view that the pace of interest rate hikes will be eased more than expected depending on how the QT progresses.
Regarding the FOMC’s focus, the terminal rate level was raised to 5.125% at the end of next year from members’ forecasts, and the interest rate level was expected to decline in 2024, not 2023. It seems that there is.
Today, the BOE and ECB are also on the horizon, so it is assumed that the market will become even more active after this. First, look at the results.
NZDUSD has stopped out and is currently in no position.