Week Ahead – Interest rates are rising

Fed and BoE to fight back against high inflation 

Central banks have provided unprecedented amounts of stimulus over the last decade and took that to another level during the pandemic as the world went into lockdown. Now the pandemic has entered a different phase that policymakers hoped wouldn’t happen and have spent months telling us wouldn’t last. Inflation has arrived and it’s making central banks very nervous.

While most broadly agree that price pressures are primarily being driven by supply-side disruptions that will ease over time, they are also becoming increasingly uncomfortable with their magnitude and duration. The longer high inflation persists, the more likely it is to become ingrained, at which point central banks have a real problem on their hands.

Some central banks have already pushed ahead with tightening monetary policy and the Fed and BoE aren’t far behind. The US central bank is expected to announce a tapering of its asset purchases on Wednesday, paving the way for a rate hike later next year, while the BoE may take the leap on Thursday, with markets pricing in many more next year. Rock bottom interest rates are a thing of the past.

Fed taper is upon us

BoE ponders first rate hike as inflation continues to rise

Japan heads to the polls


The Fed will announce ‘mission accomplished’ on reaching “substantial further progress” on both inflation and employment mandates.  Wall Street widely expects the Fed to formally announce it is ready to start tapering its asset purchases and now the debate shifts to how soon it will signal it is ready to raise interest rates.  Financial markets are pricing in two rate hikes by the Fed next year, largely because inflation pressures are not easing up anytime soon. 

Another key event for the week will be the October nonfarm payroll report.  The US economy is expected to get back on track as 425,000 jobs are filled, and the unemployment rate ticks lower to 4.7%.  For the Fed’s blessing on interest rate hikes, the unemployment rate needs to be lower than 4.3% and inflation will need to remain high. 


Despite Christine Lagarde’s best efforts, the markets were not buying what she had to sell which could be extremely problematic for the central bank going forward. Yields have been rising since the meeting on Thursday and that pressure could intensify in the coming weeks. 

It’s not often that markets will totally disregard the views of central bank heads and that will be a concern for the ECB. As well as laying the groundwork for alternative asset purchases to replace the PEPP program from March at the next meeting in December, we should also prepare for policymakers stepping up their PR offensive as they try to get investors back on board. 

That may be easier said than done in this environment. It doesn’t seem to be that investors don’t believe the central bank, rather they fundamentally disagree with their views on inflation. Unfortunately for Lagarde and her colleagues – and most other central banks – they’ve been very wrong in recent months so there is reason to disagree again. Next weeks data is mostly low to medium impact including final PMIs, unemployment and retail sales.


The Bank of England looks likely to begin its post-pandemic tightening cycle next week as it attempts to quickly get to grips with the inflation problem in the country that Chancellor Rishi Sunak alluded to during the budget this week. Inflation is expected to peak above 5% and persist throughout next year averaging around 4%.

Markets appear to be pricing in a 15 basis point hike at the moment so there is scope for some upside surprise if the Bank leads with 25 basis point rises in the early months of the cycle. Markets are pricing in at least a full percentage point of hikes by the end of next year so whether it does 15 or 25 probably doesn’t make much difference in the longer run.

The quarterly monetary policy report will be released alongside the announcement which should provide further insight on inflation expectations at the BoE and what that means for interest rates. Given how the markets responded to the ECB this week, it will be interesting to see how seriously they take this.


The Central Bank of Russia will release its monetary policy report on Monday, coming only a couple of weeks after it raised rates more than expected in order to combat higher inflation and warning more could follow this year. Inflation is expected to remain close to double its target this year which will require further action. 

South Africa

Local government elections take place on Monday, with a number of ANC seats reportedly at risk. 


The sell-off in the lira has slowed over the last week or so but remains at risk of significant further downside. It stabilised just shy of 10 to the dollar and if that’s overcome, the move could accelerate. CBRT Governor Şahap Kavcıoğlu claimed that a weak lira as a result of the central bank’s policies could fix the current account deficit problem and stabilise naturally, suggesting they must seize the opportunity presented by the pandemic. Not the words of someone that’s going to backtrack any time soon.

Inflation data next week could make for interesting reading. Then again, the central bank is clearly not concerning itself with that anymore so perhaps not.


Evergrande has paid its latest offshore bond coupon, once again, one date before the end of the grace period. That has calmed Mainland markets into the end of this week, as has the continued talking down of coal prices by China’s state planner. USD/CNY remains steady with no sign of a weakening bias by the PBOC, which instead, has been doing large liquidity injections into the local markets.

Next week sees Caixin Manufacturing and Services PMIs released with Manufacturing of most interest. A fall back under 50.0 could see China slowdown nerves increase again and may be bearish for equities. That said, authorities are unlikely to allow stock markets or property sector woes to get out of hand before the Central Committee meeting starting the 8th.


India will have a shortened week with the Diwali holidays falling on Thursday and Friday. A slow week for data with the highlight being Markit Services and Manufacturing PMIs which should show the economy continues to recover after the last delta wave. India’s Balance of Trade could show stress on the import side as the cost of imported energy skyrockets and Northern India struggles with power blackouts. A rally in oil next week will be a headwind for local equities.

Australia & New Zealand

Australian markets are in for a stormy start with the RBA’s credibility and yield control in serious trouble. Hawkish noises are increasing and the benchmark 3-year CGB yield has shot up to 0.75% in the past two days, well above the RBA 0.10% target. If the RBA does not show up on Monday to aggressively buy bonds, markets will price in a change of monetary stance and the sell-off in Australian equities could deepen. The RBA will release its latest policy decision on Tuesday with markets on a knife-edge for a change of stance. Either way, the RBA has a big job on its hands now and will likely have to intervene in bond markets repeatedly next week. It is likely to overshadow the Retail Sales and trade data at the back end of the week.

RBNZ Governor Orr has said that global interest rates have now bottomed, including in New Zealand. Kiwi could be a lot higher, but delta cases have now appeared in the South Island as well as the greater Auckland area. A deterioration over the weekend may weigh on Kiwi and local equity markets. The effects should be temporary though as markets are laser-focused on a 0.50% RBNZ hike this month. NZ Employment and Labour Costs on Wednesday will go a long way to confirming that outcome.


Japanese markets could be choppy on Monday morning after the elections to be held this Sunday. Only a defeat of the ruling LDP, highly unlikely, is likely to have a material impact on Japanese markets. Jibun services PMI and household spending at the end of the week will be of only passing interest.

Key Economic Events

Saturday, Oct. 30

G-20 Summit begins

Sunday, Oct. 31

Economic Data/Events

China Oct manufacturing PMI: 49.7e v 49.6 prior; non-manufacturing PMI: 53.0e v 53.2 prior

Japan general election for its 465-seat lower house of parliament

COP26 starts in Glasgow.

Monday, Nov. 1

Economic Data/Events

US Oct ISM Manufacturing: 60.3e v 61.1 prior, construction spending

Eurozone manufacturing PMI

Germany manufacturing PMI

UK manufacturing PMI

Australia manufacturing PMI, CoreLogic house prices, inflation gauge, home loans value

India manufacturing PMI

Thailand manufacturing PMI, business sentiment index

New Zealand CoreLogic house prices

China Caixin manufacturing PMI

Japan vehicle sales, PMI

Tuesday, Nov. 2

Economic Data/Events

RBA rate decision: Expected to keep both Cash Rate Target and 3-year yield target unchanged at 0.10%

Australia consumer confidence

ECB Enria to speak at Finnish Financial Supervisory Authority seminar on EU financial markets

New Zealand building permits

Switzerland CPI

Singapore PMI, electronics sector index

Japan monetary base

Hong Kong retail sales

US light vehicle sales

South Africa manufacturing PMI

Wednesday, Nov. 3

Economic Data/Events

FOMC Rate Decision: expected to announce it will begin tapering its asset purchases

US factory orders, US durable goods

Poland Rate decision:  Expected to raise base rate by 25bps to 0.75%

Australia building approvals, Markit PMI services and composite, private sector houses

Singapore PMI

South Africa PMI

Japan composite and services PMI

India Markit PMI composite and services

Eurozone Markit services PMI, unemployment

New Zealand Unemployment

China Caixin composite and services PMI

Russia CPI

Spain unemployment

UK Nationwide house prices

EIA Crude Oil Inventory Report

Thursday, Nov. 4

ECB President Lagarde speaks at the Women in Economics conference.

ECB’s Governing Council member Holzmann speaks at a conference in Vienna.

Fed’s Quarles, BOE Deputy Governor Cunliffe speak on a panel at a conference organized by Portuguese securities regulator CMVM.

Economic Data/Events

BOE Rate Decision: Could raise bank rate for the first time since pandemic. Analysts are leaning towards no change, but several are calling for a 15bps increase.

Norges Rate Decision: Expected to keep deposit rate unchanged at 0.25%

Czech Rate Decision: Expected to raise repurchase rate by 50 bps to 2.00%

US trade, initial jobless claims

Eurozone PPI

Germany factory orders

New Zealand ANZ commodity prices

Australia trade

Thailand consumer confidence

OPEC+ meeting on output

Friday, Nov. 5

China International Import Expo (CIIE) begins six-day event

BOE’s Ramsden and Pill deliver a Monetary Policy Report National Agency briefing.

BOE’s Tenreyro appears as a panelist at the IMF 2021 Jacques Polak Annual Research Conference.

Economic Data/Events

US October Change in nonfarm payrolls: 400Ke v 194K prior; Unemployment Rate: 4.7%e v 4.8% prior

Canada unemployment

Eurozone retail sales

Germany Industrial production

Japan household spending

Thailand CPI, foreign reserves, forward contracts

China BoP

Singapore retail sales

Australia RBA statement on monetary policy, foreign reserves

Spain industrial production

South Africa gross and net reserves

Sovereign Rating Updates

France (Fitch)

Denmark (Moody’s) 

Italy (Moody’s) 

Saudi Arabia (Moody’s)

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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