Central Banks remain in focus this week amid heightened expectations of actions from the BoE
|This week has seen volatile price action with focus surrounding the ECB announcement, the first spate of Brexit exposed UK figures, reports regarding Japanese stimulus measures and rising expectations of a rates cut from the RBNZ. In terms of the ECB announcement and press conference, as expected, no policy changes were made and President Draghi peddled the familiar wait and see approach in light of Brexit uncertainty. There were a few expectations of any major change in stance, as such upside had been observed in EUR. Elsewhere, GBP plunged in the wake of weak (post Brexit) PMI figures in which services PMI fell to its lowest level in 88-months. In turn, this saw GBP/USD break below the 1.3100 level with further downside in the pair potentially on the horizon as the poor figures increases the call for greater stimulus from the data dependent Bank of England. While JPY continued to see volatile price action yet, with reports circulating that the Japanese government are considering fiscal stimulus in around the region of JPY 20-30trl. Interestingly, an interview of BoJ Kuroda who noted that helicopter money was not possible or indeed required saw significant JPY strength, however once announced that the interview was pre-recorded this subsequently capped the losses in USD/JPY. Notable underperformer this week was NZD amid rising bets of further easing from the RBNZ in which they proposed to tighten the loan-value-ratio restriction framework, consequently providing room for the central bank to ease alleviate concerns that easing will fuel house prices. This announcement follows the recent soft inflation figures (Y/Y 0.4% vs. Exp. 0.5%), as such OIS markets are pricing in an around a 90% chance of a 25bps cut in August. Next week highlights include the FOMC meeting, in which participants will be looking to gauge the committee’s thoughts regarding the impact of the UK’s decision to leave the EU. While towards the latter of the week focus will be placed upon the BoJ’s latest rate decision where many expect additional stimulus measures to be announced.
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