Central Banks Face Critical Week of Decisions

Key Points:

• Central banks are under pressure ahead of significant decisions.
• The Bank of Japan’s (BOJ) decision is highly unpredictable.
• The Federal Reserve (Fed) is expected to maintain current rates.
• The Bank of England’s (BOE) decision is closely contested.

The upcoming week is crucial for central banks as the Bank of Japan (BOJ), Federal Reserve (Fed), and Bank of England (BOE) prepare to announce their decisions within a span of 32 hours. Market activity has been relatively muted as investors await these critical updates.

The BOJ’s decision stands out as the most uncertain. Market sentiment is split, with a roughly 60% probability of a 10-basis point hike and a 40% chance of no change. Should the BOJ decide against a rate hike, it could reverse the yen’s recent gains, potentially encountering resistance at 155.30 (100 MA).

The Fed is set to make its announcement on Wednesday. The likelihood of a rate cut is minimal, with market expectations at just 5%. Investors are particularly interested in any hints about potential moves in September.

Meanwhile, the BOE’s decision remains a close call, with nearly equal odds for a rate cut. GBP traders are also reacting to a significant speech from the new finance minister, Rachel Reeves, who revealed plans for spending cuts or tax increases to address a £22bn spending shortfall previously concealed by the Conservative government. Additionally, traders are anticipating the autumn budget announcement on October 30th.