Week In Review: Oct 24th  to Oct 28th

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BoC rate decision

On Wednesday, Bank of Canada is expected to raise rates by 75bps. Canada’s inflation rate on September was 6.9%. Despite the headline figure marginally declining from 7% YoY to 6.9% YoY, it still exceeded forecasts. In addition, the core CPI climbed from 5.8% to 6%. BoC is anticipated to increase its overnight rate by 75bps to 4% while inflation remains high.

ECB to lift rates by 75bps

European Central Bank (ECB) is also expected to lift rates by 75bps on Thursday. September saw an increase in inflation from an August figure of 9.1% YoY to 9.9% YoY.

September’s Core CPI figure was 4.8% YoY compared to August’s reading of 4.3% YoY. Given the significant increase in inflation numbers, ECB is likely to increase rates by 75bps to lift the benchmark rate to 2%.

BoJ announcement

BoJ’s ultra-loose stance may remain. They are battling with 3% year-on-year inflation. The Core CPI is also 3%, excluding fresh seafood but not fuel expenses. As a result, fresh food has had little effect on inflation. According to the Bank of Japan (BoJ) rising energy costs are the primary cause of inflation.

Can this possibly change at the meeting on Friday? Last week, BoJ intervened in the forex market which caused USD/JPY to fall to as low as 146.16.

In addition, the BOJ intervened in the bond market the day before by purchasing bonds to maintain the 0.25% cap on 10-year Japanese Government Bonds (JGB). BoJ may raise the 10-year JBG ceiling, or it could even be eliminated. Higher yields and a stronger Yen would result from this, which would lower the rate for Yen pairs. The BOJ governor Kuroda stated at the most recent meeting that they would not change their monetary policy for two to three years, contrary to what some people were anticipating the BOJ to do. As a result, anticipate that the central bank will keep interest rates at -0.1% and the 10-year JGB ceiling at 0.25%.

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