Central banks take focus this week, after hawkish comments from Fed’s Yellen and a number of BoE MPC members, while next week sees BoE release minutes of their last meeting and the RBNZ rate decision.
This week has seen focus move away from the ongoing Greece saga and back onto central banks. Monday saw markets interpret the Greek agreement as negative for EUR, seeing EUR/USD trade lower by 100 pips, before the rest of the week saw price action follow comments and action from the Fed, BoE, BoC and ECB. Fed Chair Yellen gave her semi-annual testimony to congress on Wednesday and Thursday, with markets focusing on her reiteration that the Fed’s current stance sees a rate hike this year. This helped bolster the USD, with the USD-index reaching its highest level since April, and USD/JPY breaking above the 124.00 handle.
Elsewhere, comments from the BoE struck a hawkish tone, with BoE’s Carney stating that the time for a rate hike is moving closer, BoE's Miles suggesting the time to normalise interest rates is 'soon,' and BoE's McCafferty saying there is a tight balance in policy between increasing rates and keeping them on hold. GBP has been firmer throughout the second half of the week as a consequence, with EUR/GBP reaching its highest level since 2007. Focus for GBP next week will be on the BoE minutes from their July MPC meeting. The last 2 meeting minutes have shown 2 members, with Weale and McCafferty seen as the most likely candidates, suggesting they were contemplating voting for a rate hike. The latest hawkish comments may add further attention to the release, despite the minutes being 2 weeks out of date.
This week also saw rate decisions from both the BoC and ECB, with the BoC cutting their key interest rate as well as downgrading their forecast for 2015 GDP and CPI. This saw immediate downward pressure in CAD, seeing USD/CAD rise 134 pips to reach its highest point since 2009, before going on to break above 1.3000 today. Yesterday saw the ECB rate decision where, as expected, they kept rates on hold. However, ECB’s Draghi did announce that the ELA had been extended by EUR 900mln for a week. Looking ahead to next week, markets will be looking out for a bridge loan to permit Greece to repay the ECB and IMF. Greece are also expected to pass a second bill next week, while participants will be looking out for the start of negotiations between Greece and creditors about a longer term deal.
Finally of note, next week sees the RBNZ rate decision, with the central bank touted to cut rates after this week saw NZD/USD fall over 200 pips over 2 days on the back of the latest Fonterra Global Dairy Trade auction, where prices declined to 6-year lows, and New Zealand CPI printed softer than expected (0.4% vs. Exp. 0.5%).