This we alluded to major central banks becoming more hawkish with intentions to hike rates, many policy makers would argue that nearly ten years of easing is sufficient, perhaps this is true, however the data says otherwise. The Bank of Japan (BOJ) is one Central bank who have been struggling in terms of inflation. One could look at the ECB for inspiration however, like the BOJ, the ECB are ready to use all tools available to boost inflation. It appears that the ECB have won the war on inflation and are expected (by speculators) to begin tapering back in September. The Bank of Japan had no such luck, economists are advising Abe on deregulation reform in addition to their asset purchase programme.
Despite the many attempts to increase inflation, Japanese policy makers remain optimistic, perhaps this is due to positive data coming through recently. The combination of easy money and deregulation could perhaps increase growth, one potential obstacle mitigating growth would be the strengthening of the Yen amid geopolitical tensions, we saw yesterday the Yen rise due to its safe havens characteristics. It’s plausible that, unlike other central banks, the bank of Japan won’t be making steps towards raising rates anytime soon.
Speaking of safe havens currencies, the Swiss Franc rallied yesterday against the greenback for the same reasons as above, however unlike other havens the Swiss Franc held on to its gains as North Korea hit back at Donald Trump after his “Fire and Fury” comments yesterday. It appears neither party will back down on the global stage. If a common ground isn’t found, it’s believed by many that these factors will be driving the market, overshadowing monetary policy.
William Dudley will speak later today following the release of Unemployment claims and Producer Price Index which gives an indication of the health of the US economy. As always, we are looking at whether December is on the cards for a rate hike or not. Volatility perhaps will stem from the data releases rather than the speech, however investors can gauge hiking prospects from this speech.