Major currencies steady ahead of key central bank meetings

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24 July 2018

thomasdodds

Currency markets were relatively quiet on Monday, with the major currencies mostly range bound ahead of a busy couple of weeks of central bank monetary policy meetings.

F
irst up will be this Thursday’s European Central Bank meeting. As we mentioned last week, we think that this meeting will be one of the less important meetings of the ECB in a number of months, given the major announcement on the bank’s QE programme is now behind us. The market may instead focus on any comments from President Draghi regarding the looming US-China trade war.

Attention will then turn to next week’s Federal Reserve and Bank of England meetings. The FOMC is almost certain to hold rates, although could hint at a September rate increase. As for the BoE, we still think that a hike is on the cards, although the vote on rates is likely to be a narrow one.

Euro edges lower ahead of ECB meeting

Yesterday proved to be a fairly uneventful one in Europe due to a lack of major economic news. The EUR spent much of the session stuck in a narrow range, although ended modestly lower against the US Dollar. The monthly consumer confidence index modestly surprised to the upside, although failed to shift the common currency.

Preliminary PMIs out of the Eurozone this morning are expected to show a modest slowdown from last month. Aside from any major surprises here, the major risk event in Europe this week is likely to be Thursday’s European Central Bank meeting.

Sterling stutters, Yen rises on Bank of Japan report

The Pound edged back below the 1.31 mark against the US Dollar as markets opened for the week on Monday. A weekend poll did little to help Sterling yesterday. The poll revealed that Britons were overwhelmingly opposed to Theresa May’s Brexit proposal. With no major macroeconomic data releases whatsoever in the UK, the Pound will be driven almost entirely by political news.

Elsewhere in the global financial markets, the Japanese Yen posted modest gains against most currencies after a report released from Reuters suggested that the Bank of Japan could soon be ready to dial back its massive stimulus programme. The central bank continues to fight a losing battle of lifting inflation in Japan back to its 2% target since introducing its sizable easing measures back in 2013. The BoJ is reportedly set to begin debating moves to scale back these measures when it next convenes at its two day monetary policy meeting next week.