Thinking of taking a break from all things central bank? Well, this is no time to slack.
Central bankers continue to hog the limelight this week, as markets await for more potential monetary policy clues from policymakers’ scheduled speeches, alongside some scheduled economic events:
Monday, September 27
- EUR: ECB President Christine Lagarde speech
- USD: Fed Speak - Fed Governor Lael Brainard, Chicago Fed President Charles Evans, New York Fed President John Williams
Tuesday, September 28
- CNH: China August industrial profits
- AUD: Australia August retail sales
- EUR: ECB President Christine Lagarde speech
- USD: US consumer confidence
- USD: Fed Chair Jerome Powell and Treasury Secretary Janet Yellen testify before the Senate
- GBP: BOE Governor Andrew Bailey speech
Wednesday, September 29
- JPY: Japan’s Liberal Democratic Party elects a new leader (next PM)
- EUR: Eurozone September economic confidence
- US crude: EIA crude oil inventory report
- Central bank chiefs speak: BOE’s Bailey, BOJ’s Kuroda, ECB’s Lagarde, Fed’s Powell
Thursday, September 30
- CNH: China September PMIs
- EUR: Eurozone August unemployment
- USD: US weekly initial jobless claims
- USD: Powell and Yellen testimonies before House Financial Services Committee
- USD: Fed speak - New York Fed President John Williams, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Chicago Fed President Charles Evans, St. Louis Fed President James Bullard
- USD: Deadline for Congress to avert government shutdown
Friday, October 1
- EUR: Eurozone September CPI and Markit manufacturing PMI
- GBP: UK September Markit manufacturing PMI
- USD: US August PCE inflation, personal income and spending
- USD: US September Markit manufacturing PMI, consumer sentiment, ISM manufacturing,
- USD: Fed speak – Philadelphia Fed President Patrick Harker, Cleveland Fed President Loretta Mester
Central bank policy moves have been a central theme for global financial markets so far this year, and will come into sharper focus in the final quarter of 2021.
In the final few days before Q4 official arrives, investors and traders worldwide would have to contend with a slew of speeches from central bank officials, fresh from their latest policy meetings.
Keep in mind that the Fed has recently reminded us of the possibility for its tapering of asset purchases to begin “soon”, likely starting November. The Bank of England just last week said it was open to the possibility of raising interest rates this year to get ahead of inflationary pressures. Meanwhile, the European Central Bank appears to be sticking to its patient stance, potentially leaving the ECB lagging behind its major G10 peers in the journey towards restoring policy settings to pre-pandemic levels.
Overall, markets tend to push higher the currency of the central bank that’s moving closer to normalizing their own policy.
With all that in mind, pay close attention to how the US dollar, British Pound, and the euro react to comments out of these central bank officials. More hawkish clues could send that particular currency higher, while dovish tones could pull the currency lower.
Political uncertainties could lift safe haven currencies
Markets are also set to get a dose of political drama, be it finding out who will become the next German Chancellor or the next Japanese Prime Minister, and their respective policy inclinations, or even the attempts in Capitol Hill to avoid a US government shutdown.
Given the likes of the Swiss Franc, Japanese Yen, and the US dollar which are deemed safe haven currencies, risk-off tones due to political uncertainties could buffer these currencies in their respective FX pairings.
As for the US, the political drama is likely to be moderate, knowing that politicians have on multiple occasions in the past arrived at a deal at the 11th hour to avert the shutdown.
Overall, heightened political uncertainty could push USDJPY closer to its year-to-date high above 111.0.
Gold to react to inflation signals
Gold prices could be in for some volatility this week, as the August print for the Fed’s preferred inflation gauge is set to be unveiled. If that PCE data, or the consumers’ inflation expectations, or prices paid by US businesses, all point to surging inflationary pressures in the world’s largest economy, that could prompt markets into thinking that the Fed has to hike rates sooner than expected.
Note that half of the FOMC are already penciling in a rate hike by next year, with markets fully expecting it to happen by December 2022. Should those expectations be moved forward due to signs of faster inflation, that could translate into more gains for the greenback, while heaping downward pressure on the rest of the FX universe and on gold.
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