LCG TV - Week Ahead: Fed, BoJ to determine the mood

The Federal Reserve and the Bank of Japan will be the main macro focus in the week ahead, with Wednesday 21st September being the main day on traders’ minds.

The Bank of Japan will deliver its policy verdict after weeks of speculation on how to stop the yen from appreciating, and how to get Japanese households to spend. The market expects the Bank of Japan to add more aggressive monetary stimulus in order to boost the economic growth and inflation in Japan. Expectations are very high, yet ironically no one really knows what to expect.

In the UK, the Bank of England’s quarterly report will be in focus, as will sterling. The BoE’s projections, commentaries on market developments and monetary policy operations will be on the menu. At September’s monetary policy meeting, the Bank of England maintained the status quo, while the accompanying statement revealed that most of the members are still in favour of an additional rate cut this year to counterbalance post-Brexit impacts.

Later on Wednesday, it will be the Fed’s turn to announce its monetary policy decision. Speculations regarding the Fed’s September meeting have been quite volatile over the past weeks. The probability for a Fed rate hike next week Wednesday has fallen to 18%. This means the market is not ready to absorb a rate hike at next week’s meeting. But the accompanying statement will be important as it is expected to hint at the Fed’s intentions regarding the future of its policy. The main question is whether or not the Fed could hike rates, at least once, before the end of this year.

US and Japan are the major markets to watch next week, but wrapping up the end of the week will be a speech from ECB President Mario Draghi and European manufacturing data, so the euro will also be one to watch on Thursday and Friday.