In terms of scheduled events, last week’s calendar was slightly lighter than those seen in recent weeks, although this week once again presented meaningful price action across the marketplace. In the early stages of the week, GBP was a key focus for FX markets in the run up to the BoE rate decision/minutes release with weekend press reports suggesting the central bank would be willing to look through the volatility seen in China. This was confirmed on Thursday with the release having an overall more hawkish tone as the central bank was more bullish than expected on inflation and as such, GBP gained ground against its major counterparts.
Elsewhere, other central banks came to market with their latest interest rate decisions with the BoC opting to keep rates on hold as expected despite some minor outside calls for a 25bps rate cut by BNP. The main source of price action for the pair stemmed from accompanying comments with the bank stating that effects of the previous rate cuts conducted by the bank are still feeding into the economy. Next up was the RBNZ, which cut rates by 25bps as expected, but offered a more dovish than anticipated tone in their accompanying comments and continued to stress the need for a weaker NZD. Finally, the Russian Central Bank failed to surprise the market as they kept rates unchanged at 11.00% as expected with none of the central bank’s rhetoric providing RUB with any traction.
From an Asian perspective, this week was a slightly less volatile week, although the standout move seen during Asia-Pacific trade stemmed from comments by Japanese PM Abe who announced that he would cut corporation tax by 3.3% or more, causing the Nikkei 225 to soar, and closing 7.7% in the green with downside seen in JPY. The JPY weakness was also met with softness in EUR amid an unwinding of safe-haven bids.
Looking ahead to next week, the main event on the menu and the one that all markets have been waiting for is the FOMC September meeting. In terms of expectations for the event, analysts are particularly split with markets currently pricing in a 28% chance of a Fed hike. This level is significantly lower from the expectations seen in recent weeks as participants continue to grapple with the looming fears of a Chinese growth slowdown; a factor which allied with inflation concerns may ultimately prove to be enough to convince the Fed from refraining taking action despite the robust labour market in the US.
In terms of other events, next week will also see the SNB come to market with their latest policy decision, although analysts are relatively unanimous in expecting no major changes from the central bank. The BoJ will also announce their latest policy decision, although once again no major changes are expected here with Japanese LDP lawmaker Yamamoto calling for the BoJ to ease further at their October 30th meeting instead. Finally, other notable data releases come in the form of the German ZEW survey and latest UK inflation data.