News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View more
Real Time News
  • Stock markets may be vulnerable to political volatility as China flexes its military might against Taiwan ahead of the Biden-Xi summit. Will reconciliation yield to rockets? Find out from @ZabelinDimitri here:https://t.co/YscFLDpan6 https://t.co/CoJhC9vHpB
  • Commodities Update: As of 02:00, these are your best and worst performers based on the London trading schedule: Gold: 0.20% Silver: 0.19% Oil - US Crude: -0.09% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/HrKCRbsUJP
  • Forex Update: As of 02:00, these are your best and worst performers based on the London trading schedule: 🇦🇺AUD: 0.20% 🇳🇿NZD: 0.19% 🇨🇦CAD: 0.15% 🇨🇭CHF: 0.03% 🇬🇧GBP: 0.01% 🇯🇵JPY: -0.12% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/b3hu5OEDFQ
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 90.58%, while traders in USD/JPY are at opposite extremes with 77.23%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/Ghq29hRjlq
  • RT @josh_wingrove: Biden went to Baltimore and gave the biggest update yet on the Congressional talks, said the corporate tax rate won’t ri…
  • Gold prices are under pressure after China growth slowed and New Zealand inflation surged, with investors pricing in more aggressive central bank policy outlooks, which is supporting bond yields.Get your market update from @FxWestwater here:https://t.co/9Jiy8IKqQv https://t.co/7ncLoSYQre
  • Australian Dollar gaining during morning Asia trade after reports crossed the wires that #Evergrande made a bond interest payment Sentiment is cautiously improving, #SP500 futures are pushing higher $AUDUSD #SP500 #AUD https://t.co/vWmn6HJfcd https://t.co/FeEc5HTa31
  • RT @josh_wingrove: Some clarity: President Biden's comment on the tax rate was referring to the challenge of having the votes to raise the…
  • #RBA buys bonds to defend yield target for first time since February -BBG #AUD $AUDUSD
  • #Evergrande pays $83.5m of bond interest due September 23rd -BBG citing SEC Times
Central Bank Watch: BOE & ECB Interest Rate Expectations Update

Central Bank Watch: BOE & ECB Interest Rate Expectations Update

Christopher Vecchio, CFA, Senior Strategist
Advertisement

Central Bank Watch Overview:

  • The September BOE meeting produced a hawkish tone, with two policymakers voting to reduce asset purchases. Rates markets are now discounting February 2022 for the first rate move.
  • Meanwhile, the ECB is nowhere close to raising rates, but signs that it may end its QE program may be on the horizon.
  • Retail trader positioningsuggests that EUR/USD has a mixed bias while GBP/USD has a bearish bias.

The End of Pandemic-Era Easing?

In this edition of Central Bank Watch, we’ll cover the two major central banks in Europe: the Bank of England and the European Central Bank. Earlier this month, the ECB signaled that it was making minor recalibrations to its policy efforts in order to continue to support the Eurozone’s post-pandemic recovery. Now, just hours after the BOE’s September meeting, rates markets are beginning to price in a more aggressive rate hike timeline over the next six months.

For more information on central banks, please visit the DailyFX Central Bank Release Calendar.

After BOE, Rates Markets More Hawkish

The September BOE meeting produced a hawkish surprise, with a 7-2 vote that QE should remain unchanged. Two policymakers defecting towards more stimulus withdrawal caught markets off-guard, which have since recalibrated to anticipate a faster timeline on stimulus withdrawal over the coming months. The November Quarterly Inflation Report (QIR) may harken the end of QE with rate hikes not too far around the corner.

Bank of England Interest Rate Expectations (September 23, 2021) (Table 1)

Central Bank Watch: BOE & ECB Interest Rate Expectations Update

UK overnight index swaps have been steadily advancing in recent weeks, and that continued today. After the August QIR, UK OIS were pricing in March 2020 as the likeliest period for the first rate hike. In early-September, UK overnight index swaps were suggesting that May 2022 – a meeting that will produce a new QIR – has the greatest odds of seeing the main rate liftoff. Now, after the September BOE meeting, rates markets are eying February 2022 for a 15-bps rate hike (71% chance).

IG Client Sentiment Index: GBP/USD Rate Forecast (September 23, 2021) (Chart 1)

Central Bank Watch: BOE & ECB Interest Rate Expectations Update

GBP/USD: Retail trader data shows 73.46% of traders are net-long with the ratio of traders long to short at 2.77 to 1. The number of traders net-long is 2.04% higher than yesterday and 56.35% higher from last week, while the number of traders net-short is 11.47% lower than yesterday and 37.80% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias.

QE May End, Low Rates Will Not

We’ve previously suggested that “‘lower for longer’ remains the mantra for the ECB.” We may have recently received some clarification on exactly what that means for ECB policy. According to anonymously sourced reports, ECB officials are readying to soon make an announcement that they will wind down their QE program perhaps as early as December (when the next Staff Economic Projections are released) thanks to expected Eurozone inflation rates running higher than even the ECB’s upgraded projections.

EUROPEAN CENTRAL BANK INTEREST RATE EXPECTATIONS (September 23, 2021) (TABLE 2)

Central Bank Watch: BOE & ECB Interest Rate Expectations Update

According to Eurozone overnight index swaps, the ECB will be keeping interest rates low for the foreseeable time horizon. Through September 2022, there is a 29% chance of a 10-bps rate hike. It remains the case that the ECB is solidly among the most dovish central banks among developed economies, offering little by way of support for the Euro as other central banks more aggressively signal their intention to winddown pandemic-era stimulus efforts.

IG Client Sentiment Index: EUR/USD Rate Forecast (September 23, 2021) (Chart 2)

Central Bank Watch: BOE & ECB Interest Rate Expectations Update

EUR/USD: Retail trader data shows 60.27% of traders are net-long with the ratio of traders long to short at 1.52 to 1. The number of traders net-long is 4.18% lower than yesterday and 2.57% higher from last week, while the number of traders net-short is 1.63% lower than yesterday and 15.24% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

--- Written by Christopher Vecchio, CFA, Senior Strategist

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES