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FX Week Ahead – Top 5 Events: Inflation Rates in Canada; Fed Rate Decision; BOJ Tariff Decision; SNB tariff decision; BOE rate decision

By on September 19, 2022 0

Preview of the week ahead:

  • As the calendar enters the second half of the month, central banks are in focus over the next few days.
  • The Federal Reserve and the Swiss National Bank are expected to raise rates by 75 basis points.
  • After postponing their meeting due to the death of Queen Elizabeth, the Bank of England is expected to raise rates by 50 basis points. Meanwhile, the Bank of Japan will likely remain on hold.

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20/09 TUESDAY | 12:30 GMT | CAD inflation rate (CPI) (AUG)

A rapid pace of rate hikes by the Bank of Canada so far in 2022 may finally dampen inflation in Canada. August inflation rate (CPI) in Canada is expected to come in at -0.1% m/m vs. +0.1% m/m and +7.3% y/y, according to a Bloomberg News survey. a vs. +7.6% y/y, while core inflation is expected at +0.4% m/m from +0.5% m/m and +6% y/y at from +6.1% y/y. With the BOC hinting that it has accelerated interest rate hikes – suggesting that the pace of future rate hikes will slow – signs of easing inflationary pressures could serve to undermine the Canadian dollar.

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21/09 WEDNESDAY | 6:00 p.m., 6:30 p.m. GMT | US Federal Reserve rate decision and press conference

All in all, it’s been a fairly light week on the US economic calendar. But the limited release schedule will be punctuated by the Federal Reserve’s September rate decision, by far the most important item on the schedule of all major currencies over the next few days.

September so far has been defined by a rapid rise in Fed rate hike odds. On August 1, there was a 25 basis point rate hike through the end of 2022, with a 34% chance of a second 25 basis point rate hike (50 basis points total). by the end of the year). Now, 75 basis points of rate hikes are fully discounted, with a 44% chance of a fourth rate hike of 25 basis points.

To some extent, the market is hinting that the Fed’s latest rate hikes could materialize in the coming months – with the bulk of the tightening efforts arriving this week, where a 75 basis point rate hike is the base scenario. Given the outside possibility of a 100 basis point rate hike, if the Fed delivers 75 basis points and does not offer hawkish forward guidance, the September Fed meeting could become a buy-in event. the rumor, sell the news” for the US dollar. .

22/09 THURSDAY | 03:00 GMT | Bank of Japan JPY Rate Decision

Bank of Japan rate decisions remain low on the totem pole in terms of importance relative to other central banks – especially this week. But with the Japanese yen lingering at its weakest exchange rate in decades, questions have swirled over the BOJ’s commitment to buying assets and keeping the 10-year JGB yield capped at 0.25% ( also known as QQE with yield curve control). Although it may seem otherwise, this week’s BOJ meeting poses many risks for FX markets: the base case scenario is when the BOJ re-commits to keeping yields capped, meaning that the yen will likely take another leg lower; or, much less likely, the BOJ throws in the towel on its QQE with a yield curve control policy, paving the way for a rebound in the Japanese yen.

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22/09 THURSDAY | 07:30 GMT | CHF Decision of the Swiss National Bank on interest rates

In June, the SNB surprised markets with a 50 basis point rate hike, the first of its kind since 2015. It looks like SNB policymakers are set to go further this week, where a rate hike 75 basis points – bringing the main rate from -0.25% to 0.50% – is expected. With Swiss inflation at its highest level in 30 years, SNB officials are content to allow a stronger Swiss franc to help ease price pressures. The SNB could also offer hawkish forecasts, signaling further rate hikes in the coming months.

22/09 THURSDAY | 11:00 GMT | Bank of England GBP rate decision

UK stagflation risks remain elevated as growth slows and inflation continues to rise. But BOE policymakers are still focused on the latter of these two questions, as rates markets price a 50 basis point rate hike – taking the key rate to 2.25% from 1.75% – this week. Further hikes are likely to be suggested as the BOE’s expected terminal rate for 2022 now stands at 3.608%, up from 3.365% a month ago, meaning that at least another 125 basis points of hikes are integrated after the September meeting of the BOE. .

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— Written by Christopher Vecchio, CFA, Senior Strategist

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