At this week's policy meetings of the US FRB, the ECB and the Bank of Japan, markets are widely expecting all three to leave policy rates unchanged. The focus will be on whether the possibility of further rate hikes recedes at each central bank's press conference.
This week is central bank week, with meetings of the FRB, ECB and Bank of Japan. Markets are overwhelmingly expecting all 3 to leave policy rates unchanged, and expectations are spreading that a rate hike by any of them could be a major surprise. As of the 23rd, market pricing indicated a rate hike probability of just under 10% for the FRB, approximately 3% for the ECB and approximately 2% for the BOJ. The focus will be on whether the comments by each central bank governor at the post-meeting press conference reinforce or revise the outlook.
The results of the FOMC on the 28th, the ECB Governing Council meeting on the 29th and the BOJ Monetary Policy Meeting on the 30th will be released this week. Oil price trends, geopolitical risks and movements in long-term interest rates are also expected to influence market reactions, and the post-meeting comments could affect the direction of long-term interest rates.
While some market participants expect expectations of further rate hikes by the FRB, ECB and BOJ to persist, others point out that those expectations could recede depending on the comments from the chairs and governors. Attention is focused on developments in the foreign exchange and bond markets following the results of central bank week.