Hike rates

USD Plunges (Slightly) Lower Fed, Could BoE Raise Rates?

The Federal Reserve made it official. Starting this month, it will cut its monthly bond purchases by $15 billion ($10 billion in Treasuries, $5 billion in mortgage-backed securities). By June 2022, the bond buying program is expected to end. The Fed explains that the pandemic stimulus may begin to be undone as “substantial further progress in the economy has (been) made toward the committee’s goals since last December.”

She left interest rates unchanged, which was expected, and continued to use the word “transitional” to describe inflation. While some investors thought he would drop that language, it didn’t seem to matter, as once the dust settled, the day ended virtually unchanged (slightly down) from its pre-March levels. FOMC against other major currencies. Stocks and bond yields finished higher, which should benefit the yen crosses.

Looking ahead to Friday’s nonfarm payrolls report, economists expect a significant pick-up in job growth through October. Much of that has to do with the slowdown in September, when nonfarm payrolls grew by just 194,000. That number is expected to more than double this week, with a consensus forecast of 450,000. According to ADP, growth in the private sector payroll was very strong last month, but even though activity in the services sector reached a record high in October, the shortage of workers has dragged down the employment index. As one of the most important leading indicators for nonfarm payrolls, this suggests that while more payrolls are expected in October, the increase could be lower than the market’s lofty forecast.

Will the BoE work on Thursday?

Meanwhile, as we count down to Friday’s NFP report, our attention shifts to the Bank of England’s monetary policy announcement on Thursday. In many ways, the BoE’s rate decision is likely to have a bigger impact than the FOMC on the US dollar, as the UK central bank is set to raise interest rates. As the second major central bank to cut asset purchases, the BoE has led the pack in removing pandemic support, and with inflation soaring, a small contingent of investors believe that it could increase as early as Thursday. The market is pricing in a 60% chance of a 15bp upside, meaning a full quarter-point move is unlikely. However, the central bank has already made a smaller adjustment, so we cannot completely rule out this possibility.
BoE Governor Andrew Bailey and Monetary Policy Committee member Michael Saunders have suggested an immediate hike may be needed, but other policymakers want to see further improvements in market activity labor or evidence that inflation is less transient before acting. With the RBNZ rising in rates, the Bank of Canada announcing the end of quantitative easing and the Fed beginning to scale back asset purchases, we believe there is a good chance for a rate hike by the BoE. It might not be a full quarter point, but it could be a 15 basis point increase. An immediate tightening should be extremely positive for the greenback, as it is not really anticipated. However, if the BoE forgoes a November rate hike, then a December hike becomes very likely. In this scenario, we expect no change to come with hawkish comments, which could be initially negative but ultimately positive for the GBP. Either way, barring unexpected surprises, we see post-BoE strength, especially against the euro.
The best performing currency today was the . Job growth soared in the third quarter, bringing the nation’s unemployment rate to its lowest level since 2007. The 3.4% is well below the forecast of 3.9% and is a record low. Wage growth was also healthy, up 0.7%. These data support the Reserve Bank of New Zealand’s recent decision to raise interest rates. The rise followed that of the NZD, but was dampened by the 4% drop in .