This week will be a significant one in terms of economic data and setting the tone for the upcoming months. We see the central banks of four key economies step up to bat, as they set out to release their new interest rates and also release their Monetary Policy Statements.
First up is the Federal Reserve Bank of America, where markets have been poised to receive news of a rate increase of 0.25%, only the third of its kind in over 10 years out of the USA. Markets have priced in the event as we have seen key economic releases outperform expectations along with hawkish rhetoric by FOMC members. Should the FED increase rates as expected, the USD will likely move higher although we might see some profit taking in the true style of buy the rumour, sell the fact style. If the Fed fails to raise rates, the USD will be sold off aggressively as disappointed markets unwind their longs. A hawkish FED will likely result in a sell of commodities as the stronger USD drives prices lower as well as a decrease in parts of the equities market as the cost of borrowing to invest goes up, prompting investors to scale down their positioning, one exception will likely be the banking sector, who will thrive on more profits being made due to higher interest rates. Conversely a non-event in which markets are disappointed by the FED, will likely see commodities spike higher with equities in general moving higher while banking sector shares fall.
The BOJ, SNB and BOE are next up to bat and though they are expected to keep their rates unchanged, markets will be paying close attention to the Monetary Policy statement releases by each of them in an attempt to determine their positons on the current state of their respective economic strength along with outlines of how each plans to stimulate growth and stability for their economies. Should they strike a hawkish tone, in which they see markets stabilising with improved growth and a stabilising labour market, we would see their respective currencies appreciate. However, a worse than expected outlook, in which they strike a dovish tone, will see their respective currencies depreciate in response.