News & Analysis

The past week has been another tumultuous one for markets. Overall, the appetite by traders to price the Fed’s pivot, and the ensuing risk-on rally, has been evident yet again. It wasn’t just the soft US PMIs or the collapse in house prices that provided support to risk conditions, but also the Bank of Canada’s decision to prioritise growth and financial stability risks, thus opting for a more conservative path for rates with a 50bp hike. Ultimately, the price action this week was reminiscent of the start of October, where similar dynamics took place following ISM manufacturing and JOLTs data, which was then compounded by news that the RBA would downshift to 25bps hikes due to slowing global growth conditions and housing market concerns. Like the first week of October, the risk rally was soon faded towards the end of the week as the US data calendar started to fight back. This sets the backdrop to next week’s Fed meeting, where we expect a further 75bps hike and a hawkish tone in order to keep financial conditions tight until inflation pressures start to subside. Additionally, we expect the BoE to also hike by 75bps, owing to the strong inflation pressures and growing risks to inflation expectations de-anchoring. On top of that, we have fresh jobs data out of the US and Canada, and decisions from the Reserve Bank of Australia and Norges Bank.

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Authors: 
Simon Harvey, Head of FX Analysis
Jay Zhao-Murray, FX Market Analyst
María Marcos, FX Market Analyst

 

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