US Federal Reserve

  • Policymakers have gotten away with a "skip" decision in June
  • But markets are anticipating a rate hike to follow that in July
  • However, there is a long way to go between now and the decision on 26 July
  • There will be a slew of big data to come before that, most notably the US CPI data on 12 July
  • Fed funds futures are showing odds of a 25 bps rate hike at ~86%
  • The remaining ~14% is reflecting a no change decision
FFF
Fed funds futures curve (as of 3 July)

European Central Bank

  • Policymakers have pretty much pre-committed to a 25 bps rate hike in July
  • Markets have fully priced in that decision at the moment
  • The big question is if they will continue tightening policy in September
  • The latest inflation figures continue to show that core inflation remains sticky
  • That is prompting calls in the market to anticipate another 25 bps rate hike after the summer
  • However, the economy is starting to slide back again at the end of Q2
  • The manufacturing sector is already in recession and services are beginning to stutter
  • If the trend continues, the ECB has to find a balance on that
ECB
ESTR forward curve (as of 3 July)

Bank of Japan

  • There continues to be no policy change since new governor Ueda took over
  • That has resulted in yen bulls growing increasingly frustrated
  • As such, we have seen the yen fall dramatically against the euro and pound in particular
  • USD/JPY has also risen back to near intervention territory close to 145
  • So far, there hasn't been any major hints of change to come in the short-term
  • But there are certain quarters of the market eyeing a potential tweak in YCC in July
  • If that doesn't come, expect the yen to fall further as the market frustration grows

Bank of England

  • Inflation continues to be a problem as it remains sticky
  • The cost-of-living crisis is also still in effect, weighing on economic conditions
  • That is resulting in growing stagflation risks and the BOE has to try and navigate a soft landing
  • So far, policymakers are making it clear that their number one agenda is to counteract inflation
  • But if that comes at the risks of damaging the economy further, more rate hikes may be bad for sterling
  • A 25 bps rate hike for August is now fully priced in, with markets even leaning towards a 50 bps move
  • Odds of the latter are at ~83% at the moment
BOE OIS
BOE bank rate pricing via OIS curve (as of 3 July)

Swiss National Bank

  • The SNB continues to maintain that they are still on the tightening path
  • Inflation pressures are still holding and so they might continue to hike rates further
  • The next decision is in September though, so there is still some scope for that pricing to shift around
  • If other major central banks are starting to pause by then, the SNB may follow as well

Bank of Canada

  • Policymakers surprised with a rate hike in June, though the decision was rather 50-50 to be fair
  • However, they did remove a key passage in the forward guidance so as to open the door for pausing
  • It could be a case that they may wait and see in July
  • But it looks like markets will have to play a guessing game once again it would seem
  • The odds for a 25 bps rate hike is now at ~53%, pretty much a coin flip once again

Reserve Bank of Australia

  • If the RBA is looking for a reason to pause the tightening cycle, they may find no better time than now
  • The monthly inflation numbers for May showed some signs of easing here
  • And that is keeping markets guessing a little ahead of the decision tomorrow
  • The OIS market is seeing roughly ~37% odds of a 25 bps rate hike
  • RBA cash rate futures are seeing a July cash rate of 4.17% (+10 bps)
  • That indicates traders aren't really pricing in firmly a rate hike for this week
  • The balance of risks as such is leaning towards a hawkish surprise by the RBA
  • But even if they do not hike the cash rate, the aussie may still feel disappointed
  • Markets are looking for another rate hike in August at least, with roughly 47 bps worth more of rate hikes priced in by year-end

Reserve Bank of New Zealand

  • One of the few major central banks that pretty much is in a de facto pause mode already
  • Markets are not seeing any change for this month's decision
  • The OIS market is pricing in ~92% of that probability