interest rate decisions

In the ever-evolving landscape of financial markets, decisions made by major central banks have a significant impact on shaping trends. We recently had the opportunity to speak with Matthew Weller, an analyst at StoneX, to gain insights into the current state of affairs.   Read more   The European Central Bank (ECB) recently made headlines with its "Hawkish Hike," raising its key interest rate by 25 basis points to 3.5%. This move aims to combat the escalating inflation in the eurozone, marking the eighth consecutive rate hike since July 2022. The ECB's determination to bring inflation down from its current 6.1% to its target of 2% is evident. ECB President Christine Lagarde has hinted at the possibility of further rate hikes at the next meeting in July, emphasizing the need to tackle inflation head-on. Lagarde made it clear that the ECB has no plans to pause its rate hikes. While the ECB focuses on inflation control, other central banks, such as the US Federal Reserve, have taken a pause in their rate hikes to assess their impact on economic growth and employment. However, the Fed's projections indicate the potential for two more rate hikes this year. Similarly, central banks in Australia and Canada have resumed rate increases after a temporary pause, underscoring the global challenge of high inflation. The ECB's decision to raise rates comes at a time of economic uncertainty, influenced by factors such as the ongoing conflict between Russia and Ukraine and potential wage agreements that may further fuel inflationary pressures. The ECB acknowledges that short-term economic growth may remain subdued, but it expects improvements as inflation subsides and supply disruptions ease. While concerns persist regarding the potential negative impact of higher rates on the economy and the risk of a recession, the ECB remains committed to addressing inflation as a top priority   FXMAG.COM: Could you give as your point of view about how the gold prices would behave in next weeks? Is there a chance that there will be new ATH? Gold Consolidates Amid Hawkish Central Bank Actions   With major central banks continuing to tighten monetary policy and inflation still receding (if more gradually than before) gold prices are likely to remain on the back foot in the near term. As of writing, the yellow metal is trading in the mid-$1900s, where it has spent the last three weeks consolidating. Bulls will be looking for a break above the June high near $1990 to signal a potential retest of the record highs near $2075 as we move into July, whereas a confirmed break below $1930 could open the door for a retest of the 200-day EMA near $1900 next.

Economic outlook maintains pressure on oil prices Oil prices are trading broadly flat at the start of the week, in keeping with the general feeling in the markets in the absence of any notable catalysts. It has recovered quite well over the last week having fallen back towards the 2023 lows last Monday. It remains in the lower trading range between $70-$80 in Brent and showing little sign of breaking in either direction at this stage. The economic outlook has been a major factor behind its slide this year and some improvements on that side could turn things around for it. The problem is that no major central bank has yet ended its tightening cycle and a number of more rate hikes could still be on the cards. Even those that had previously declared a pause have restarted.   A choppy period but what’s going to change for gold? Gold has been very choppy over the last month and recent data and central bank decisions haven’t enabled it to break out of its tight range in either direction. It’s been trapped largely between $1,940 and $1,980 and showing few signs of changing that in the near future. Things can obviously change at any point and there’s plenty of Fed speak this week as well as central bank interest rate decisions. But we’ve just heard the latest thoughts and projections from the Fed so I’m not sure what we’ll learn of particular value. It’s all about the data at this stage.  

GBP: Volatile pricing ahead of PMIs Bank of England rate expectations have been quite volatile since the upside surprise in wages and CPI last week. The miss in retail sales on Friday saw peak Bank rate expectations as measured in the Sonia rate drop more than 10bp. Markets are currently looking at 5.95-6.0%, but today’s PMI release in the UK may well move pricing again. Consensus is expecting some slowdown in both manufacturing (already in contraction territory) and services (to 51.0). The Bank of England will also look at the details of the survey searching for evidence that price pressures are abating. EUR/GBP can make another attempt at breaking 0.8500 today, although the sustainability of sub-0.8500 levels is questionable unless markets price in more rate hikes in the UK or price out tightening in the eurozone.

In a pivotal decision, the Bank of Canada has chosen to maintain its benchmark interest rate at 5%, opting for stability amidst a backdrop of increasing uncertainty in the global economy. This move underscores the delicate balancing act that central banks worldwide are currently navigating as they seek to foster economic growth while mitigating the persistent threat of inflationary pressures.   At the Heart of the Matter The Bank of Canada's steadfast commitment to keeping interest rates at their current level is emblematic of the institution's concerns regarding the fragility of the global economic recovery. While inflation remains a prevalent worry, policymakers are treading cautiously to avoid the potential adverse consequences of premature rate hikes.   A Global Ripple Effect The Bank of Canada's stance on interest rates carries significant implications that extend well beyond its borders. As one of the world's leading economies, Canada's monetary policy decisions hold the power to influence the strategies adopted by central banks in other nations. Additionally, these decisions reverberate through global financial markets, shaping investor sentiment and influencing asset prices. In a rapidly evolving economic landscape, the Bank of Canada's decision to maintain interest rates provides a snapshot of the nuanced considerations faced by central banks worldwide. As they grapple with uncertainty and attempt to strike a delicate balance between economic growth and inflation control, the world watches with keen interest, cognizant of the potential ripple effects that each policy move may bring.   This article aims to provide readers with a succinct yet comprehensive overview of the Bank of Canada's recent interest rate decision and its broader implications within the global financial landscape. Optimized for SEO, it offers valuable insights into the current challenges facing central banks and the evolving dynamics of the global economy.   The decision by the Bank of Canada to maintain interest rates at 5% highlights the central bank's cautious approach to addressing economic challenges. In the face of uncertainties such as the ongoing global supply chain disruptions and the potential impact of new variants of the COVID-19 virus, central banks worldwide are opting for prudence. By holding the benchmark rate steady, the Bank of Canada aims to support domestic economic recovery while closely monitoring inflationary pressures. This stance reflects a broader trend among central banks, as they grapple with the complexities of an ever-evolving economic landscape.   The Bank of Canada's decision will undoubtedly be scrutinized by economists, policymakers, and financial markets, as it provides valuable insights into the delicate balancing act of managing economic growth and inflation in a post-pandemic world. In this interconnected global economy, the implications of such decisions ripple across borders, affecting businesses, investors, and individuals alike.   As economic conditions continue to evolve, central banks remain at the forefront of efforts to navigate the path forward, seeking to foster stability and sustainable growth in an uncertain world. In a rapidly shifting economic landscape, the Bank of Canada's choice to maintain interest rates provides a snapshot of the multifaceted considerations confronting central banks worldwide. As they grapple with an atmosphere of uncertainty and endeavor to strike an intricate balance between stimulating economic growth and effectively managing inflation, the world watches with acute interest. It is well aware of the potential far-reaching consequences that each policy decision can bring.  

Surging oil prices: a new concern for central banks Life for the European Central Bank has become even more complicated as surging oil prices add to the trilemma of how to balance slowing economies, the delayed impact of the rate hikes so far and still too-high inflation.   Surging oil prices have become the new concern for central banks, aggravating the current trilemma: how to balance slowing economies, still too-high inflation and the delayed impact of unprecedented rate hikes. Interestingly, the answer to this conundrum differs between major central banks. Looking ahead, the recent surge in oil prices will make things even more complicated as it will both worsen the economic slowdown but also push up inflation (or at least reduce the disinflationary trend). Balancing growth and inflation will become even harder and future interest rate decisions will not only be determined by these two variables but also by central banks’ credibility. In this regard, central banks most concerned about their credibility and the longer-term impact on inflation expectations could end up continuing to hike interest rates. In the following article, we will mainly focus on the eurozone and the EC   Oil price rally likely to continue, but it's not sustainable in the longer run Oil prices are currently up by more than 25% this quarter and briefly reached 95 USD/b last week. Our commodities analyst Warren Patterson expects oil prices to break above 100 USD/b in the near term as supply cuts by OPEC+ countries more than offset weaker demand due to the global economy’s slowdown. However, he doesn’t see oil prices remaining above 100 USD/b for long as weaker demand and political pressure to increase supply should help to bring oil prices back to levels slightly above 90 USD/b.   Is this the second wave of inflation that we thought would never come? A few weeks ago, we argued that the current inflation situation is not the same as the 1970s and that a second inflation wave looked highly unlikely. However, we also admitted that in the late 1970s, the second energy crisis was a main driver for the second inflation wave in many countries. In the eurozone, there were three peak periods for inflation in the 1970s. The first was in 1974, when headline inflation was close to 14%; the second in 1977 with headline inflation above 10%, and then again in late 1979 and early 1980 with headline inflation back at double-digit levels. Back then, real wage growth remained positive even during the spikes of the oil crises, which allowed inflation to remain above 7% for more than a decade (1972-1984). Indeed, the countries that experienced higher real wage growth for the period also experienced the highest inflation over this period (see chart below). The current surge in inflation is different in that real wage growth turned negative quickly, which has slowed consumer demand drastically. This makes the chances of a prolonged second spike in inflation much smaller. With inflation currently trending down and wage growth stabilising above 4%, real wage growth is set to soon turn positive again, but we wouldn’t expect it to erase the losses from the past two years. At the same time, it is important to note that government support and employment growth have limited disposable income losses quite substantially.   In the 70s, countries with higher real wage growth also experienced higher inflation    

In order to understand how the Bank of England is going to act at the remaining two meetings in 2023, we need to consider its potential for raising interest rates. The first and most crucial indicator that the central bank (and the markets) has been relying on for some time is inflation. However, as of September, inflation remains extremely high, well above the target level. One might assume that the BoE will continue to hike rates, but in September, it took a pause. A pause can only mean two things: either the BoE is preparing to end the tightening process, or it has already completed it     BoE Governor Andrew Bailey and some other members of the BoE's Monetary Policy Committee have mentioned that they expect inflation to drop to 5% by the end of the year. A 5% inflation rate is still very high, 2.5 times above the target. If the BoE is already prepared to conclude its tightening, it may not achieve the target. Furthermore, there's no guarantee that inflation won't start accelerating again.   For instance, US inflation has been rising for the past two months. All I want to convey with these arguments is that it's still too early to assume that inflation can return to 2% at the current interest rate level. Based on that, I believe that the BoE has exhausted its potential for rate hikes, and this is the main reason for the pause in September. Now, the central bank will only raise rates if inflation starts to accelerate significantly. And in that case, the 2% target may be forgotten for several years even with a peak rate, but we could still see 1-2 more emergency rate hikes. I also want to note that the BoE (like the European Central Bank) is counting on holding rates at the peak level for an extended period to bring inflation back to 2%. This was mentioned after last week's meeting.   The Monetary Policy Committee expects inflation to slow down further, but Bailey says cutting rates would be "very premature". Four out of nine committee members voted for a rate hike at the previous meeting. In addition, the Monetary Policy Committee said its balance sheet of government debt will shrink by £100 billion. Based on the analysis conducted, I came to the conclusion that a downward wave pattern is being formed.   I still believe that targets in the 1.0500-1.0600 range for the downtrend are quite feasible, especially since they are quite near. Therefore, I will continue to sell the instrument. Since the downward wave did not end near the 1.0637 level, we can expect the pair to fall to the 1.05 level and slightly below. However, the second corrective wave will start sooner or later.     The wave pattern of the GBP/USD instrument suggests a decline within the downtrend. At most, the British pound can expect the formation of wave 2 or b in the near future. However, even with a corrective wave, there are still significant challenges. At this time, I would remain cautious about selling, as there may be a corrective upward wave forming in the near future, but for now we have not seen any signals for this wave yet.  

UK wages/UK CPI (Dec) – 16/01 and 17/01 Since March of last year headline CPI in the UK has more than halved, slowing from 10.1%, with November slowing more than expected to 3.9%, prompting speculation that the Bank of England might be closer to cutting rates in 2024 than had been originally priced. The decline in headline inflation is very much welcome, however most of it has been driven by the falls in petrol prices over the past few weeks. Inflation elsewhere in the UK economy is still much higher although even in these areas it has been slowing. Food price inflation for example is still much higher, slowing to 6.6% in December, while wage growth is still trending above 7% at 7.2%. Services inflation is also higher at 6.3% while core prices rose at 5.1% in the 3-months to November.   This week's wages and inflation numbers are likely to be key bellwethers for the timing of when the Bank of England might look at starting to reduce the base rate, however the key test for markets won't be on how whether we see a further slowdown in inflation at the end of last year, but how much of a rebound we see in the January numbers. Whatever markets might look to price as far as rate cuts are concerned the fact that wages are still trending above 7% is likely to stay the Bank of England's hand when it comes to looking at rate cuts. It's also important to remember that at the last rate meeting 3 members voted for a further 25bps rate hike. That means it will take more than a further slowdown in the headline rate for these 3 MPC members to reverse that call, let alone call for rate cuts. Expectations are for wages to slow to 6.7% and headline CPI to come in at 3.8%.