ECB guidance to take centre stage next week, CBR set to hike rates

Markets faced renewed fears of sharply rising inflation last week, with questions arising on whether monetary policy normalisation should start sooner. Hawks at the Bank of England spoke up after June inflation jumped by 2.5% YoY, with Michael Saunders stating that inflation could double up if pressures continue to build. In the US, CPI inflation surging to 5.4% YoY led to mixed commentary from the Federal Reserve, with Chair Powell maintaining a dovish tone at this week’s testimony while St. Louis President James Bullard pledged for earlier normalisation. Despite comments from Fed hawks, most policymakers highlighted the transitory nature of the inflation surges, while the gap in unemployment warrants a prolonged stimulus via interest rates. However, the wind is blowing towards lively tapering discussions, as inflation expectations hinge on the balance. The ECB takes centre stage next week, with a revamped strategy review setting the tone for a persistently more dovish course of action in the months to come, while the CBR is set to hike rates further amid a light data calendar.

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Authors:

Olivia Alvarez Mendez, FX Market Analyst

Ima Sammani, FX Market Analyst

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