BoE monetary policy decisions and FOMC minutes are the two main focuses today. BoE is widely expected to keep interest rate unchanged at 0.50% and asset purchase target at GBP 375b. A major focus is on the vote split where markets expected Ian McCafferty to continue to dissent on rate decision and vote for a hike. Sterling has been under some pressure since July on speculations that recent market turmoil would delay BoE's rate hike deep into mid next year. But the pound is supported this week on a couple of factors including improving risk market sentiments, better than expected data. Also, in the latest update, IMF raised UK growth forecast for 2015 from 2.4% to 2.5% and kept that for 2016 at 2.2%. That compared to the backdrop of lowering global growth forecast from 3.3% to 3.1% in 2015 and from 3.8% to 3.6% in 2016. ECB monetary policy meeting accounts will also be watched in European session.
Regarding FOMC minutes, markets main focus will remain on whether Fed will lift interest rates from the current near zero level by the end of the year. While there were some fluctuation in market expectations, they remain within a certain range. Fed fund futures are now pointing to 39% chance of a 25bps hike in December, the same as a month ago. Last week's disappointing non-farm payroll job report triggered a dip in the pricing to 33% but that quickly recovered. So far, messages from Fed officials, including chair Janet Yellen, still suggested that they are on schedule for a hike this year. But there are arguments that, with lackluster inflation and risk of slowing employment growth, Fed could afford to wait a few more months.
Former Fed chair Ben Bernanke said that a few months are needed to gauge how the recent global market turmoil would affect the US economy. And that will set up a tough call for Fed officials to decide on rates. Bernanke noted that was a "pretty good domestic expansion" that could withstand the drag from emerging markets. Meanwhile, IMF repeated its urge for Fed to refrain from hiking rates "until there are further signs of inflation rising steadily, with continued strength in the labor market". A top IMF financial counsellor said that "global financial stability is not yet assured and downside risks prevail."
On the data front, UK RICS house price balance dropped to 44 in September. Japan machine orders dropped -5.7% mom in August. Current account surplus widened to JPY 1.59T in August. Looking ahead, Swiss unemployment rate, German trade balance will be featured in European session. Canada housing starts, new housing price index and US jobless claims will be featured in US session.