Central banks set to stretch hawkish wings 

FX markets this week struck a classic risk-on tone, driven by expectations of more dovish Federal Reserve following Powell’s Jackson Hole speech and a slip in August’s Nonfarm Payrolls, while the Aussie and Kiwi dollars benefitted from improving Covid-19 backdrops as their vaccination pushes picked up speed. Next week, price action in US fixed income markets will continue to garner a lot of market attention, while increasingly hawkish central bank developments will also be in scope. Of note is the Reserve Bank of Australia, who we expect to press on with tapering their QE programme, the Bank of Russia who are expected to hike by 50bps, the National Bank of Poland who will battle with record high inflation, and the European Central Bank. The ECB are set to contend with increasing calls from Northern European Governors to reduce the pace of PEPP purchases despite a still uncertain economic outlook. We expect the ECB to reduce the pace of PEPP purchases in Q4, but for the message to be delivered in a still dovish manner by President Lagarde.

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Authors: 

Simon Harvey, Senior FX Market Analyst

Olivia Alvarez Mendez, FX Market Analyst

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