Rate Hike Expectaions Faded

LCG Research Team:  ‘Expansion not austerity’ summarized the G20 meeting over the weekend. G20 nations pledged to use ‘all policy tools’ to support growth, hinting at further fiscal and monetary  stimulus across the globe. Leaders also voiced their concern regarding Britain’s decision to leave the European Union, mounting terrorism and the Trump-threat in the run up to the US presidential election.

The Federal Reserve (Fed) and the Bank of Japan (BoJ) will give their policy verdicts this week.

The Fed is expected to remain on hold and to deliver a cautious accompanying statement given the rising political and economic risks following the Brexit vote. The expectations of a Fed rate hike by the end of the year have faded to zero. In contrary, the market is pricing in more than a 50% chance for an interest rate cut in the US by March 2017.

The Bank of Japan (BoJ) is also under close watch this week. Global slowdown, risk-off inflows into the yen following the Brexit vote and cheaper oil imports with a stronger currency continue weighing on inflation and inflation expectations in Japan. Many expect a dovish BoJ statement this Thursday.

The USDJPY consolidates above the 106 mark on expectations for additional monetary stimulus.

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