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Bank of England Hikes Rates, More Fed Hikes Coming, And Bank Of Japan Dovish

John M. Bland, MBA, co-founder,

Bank OF England Hikes Key Rate By 25bps To 0.75% As expected, the Bank of England hiked its key Repo Rate by 25bps on Thursday to 0.75%. Market odds on a hike at this meeting had been 90% in favor of this tightening into the meeting. The street consensus on the vote was 7-2, but it came out at 9-0 in favor of the hike. My view was this simply the view on this decision alone. I don’t feel the committee was sending a signal about the future. Afterwards. some in the markets were calling this a “dovish” rate hike. The central bank reiterated reiterated the view that future rate hikes will be limited and gradual. The expected future policy path is for one 25bp hike in each of the next three years. The GBPUSD reaction to the announcement was mixed. The next policy move is not likely until after Brexit negotiations have been resolved.

Fed Holds Policy Steady As Expected The Fed kept key rates steady at its meeting on August 1. It has had an unwritten policy of not changing rates at meetings without press conferences. This will change after the start of the new year when they start having a press conference after all meetings. Currently, only quarterly meetings have a presser. The policy statement on Wednesday continued to suggest that the central bank expects the economy to continue to advance strongly, and this perception should continue to support market expectations in favor of 25bp rate hikes at the September and December meetings. This would take the top end of the Fed Funds target range to 2-1/2%, which many Fed members see as the current “neutral” Funds rate. Rising official interest rates should continue to be USD supportive. Nothing was said about the independence of the Fed, following recent comments by the President, which some took to be as possible interference with its recent policy decisions..

Dovish Bank Of Japan Surprises Markets Early in the week the Bank of Japan sent the markets a dovish signal when, as expected, it kept key rates steady and then provided some forward guidance saying that it would maintain low interest rates for an “extended period of time”. The BOJ also cut its inflation forecast. They also indicated an end to yield curve control (YCC) is underway. Speculation about such a move had seen the yield on the U.S. 10-yr spike higher. the BoJ did add some flexibility to its YCC operations, but it should continue to maintain the yield on 10-yr JGB’s close to 0%.

GVI Trading. Potential Price Risk Scale

AA: Major, A: High, B: Medium

Mon 6 Aug 2018

AA CA- Holiday

Tue 7 Aug 2018

AA Reserve Bank Of Australia Decision

Wed 8 Aug 2018

A 12:30 US- PPI

A 14:30 US- EIA Crude

A 21:00 NZ- RBNZ Decision

Thu 9 Aug 2018

A 12:30 US- Weekly Jobless

A 23:50 JP- GDP

Fri 10 Aug 2018

A 08:30 GB- GDP

AA 12:30 US- CPI

A 12:30 CA- Employment

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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