The BOJ Could Shock with New QE, While the BOE is expected to be focused on Brexit
The Federal Open Market Committee (FOMC) statement brought no surprises on Wednesday. The U.S. benchmark interest rate remains unchanged at 0.50 percent. The economic projections were lower than in January and the dot-plot showed one Fed member is only forecasting 1 rate hike in 2016 and none in 2017. The biggest problem facing the Fed next monetary policy decision move is timing. A 25 basis points will not be a global game changer, but it could boost the USD if there is the expectation of higher rates down the line. Right now markets are pricing lower for longer, and pushing government bonds into negative territory in Europe and Japan.
The Bank of Japan is up next in the weekly agenda with a tentative monetary policy decision and press conference. The BoJ is the central bank that could surprise markets with a monetary policy decision. The Fed as expected held pat and the Bank of England and the Swiss National Bank will most likely await the outcome of the Brexit referendum. The Bank of Japan will announce its decision and follow up press conference between Wednesday and Thursday EDT.
The Bank of England (BoE) will release its monetary policy committee summary on Thursday, June 16 at 7:00 am. The minutes of the meeting and the rate vote count will be announced at the same time. The British central bank is not expected to announce any changes, and will most likely use this opportunity to warn markets about the upcoming Brexit referendum, as it is the biggest risk to the U.K. economy.
The EUR/GBP has gained almost 1 percent in the last week and 0.44 percent in the last 24 hours. The pair is trading at 0.7932. The anxiety from Brexit has made investors flock to safe havens and brought sovereign bond yields down to, in some cases, negative territory.
European financial institutions have taking a blow in the stock market as Brexit polls swing from Leave to Stay on a regular basis. The fever pitch of uncertainty is only set to rise ahead of the June 23 referendum. The BoE has done a lot to try to reassure markets that it will do all in its power to reduce the impact, but at the same time warning that an exit from the European Union will be costly for the pound and the economy.
Central bank induced volatility will continue even as there are little changes expected from the central banks of Japan and the United Kingdom. Japan was always the wildcard this week as Governor Kuroda has caught the market unprepared in a couple of occasions with surprise stimulus announcements.
Market events to watch this week:
Thursday, June 16
Tentative JPY BOJ Press Conference
3:30am CHF Libor Rate
3:30am CHF SNB Monetary Policy Assessment
3:30am CHF SNB Press Conference
4:30am GBP Retail Sales m/m
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30amUSD Philly Fed Manufacturing Index
8:30am USD Unemployment Claims
Friday, June 17
8:30am CAD Core CPI m/m
8:30am USD Building Permits
11:00am EUR ECB President Draghi Speaks
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar