This will keep market players on their toes in the days ahead, especially the Fed decision. USD/JPY is on the brink of a break under 140.00 and 2-year Treasury yields might be threatening a fall to its lowest in two years. Meanwhile, gold is surging to fresh record highs as broader markets are still taking into consideration a 50 bps move by the Fed this week.
As things stand, traders are pricing in higher odds of a 50 bps move on Wednesday as compared to a 25 bps one. The odds of the former are now at ~59% with a 25 bps move only at ~41%. Meanwhile, traders are also pricing in some ~118 bps of rate cuts for what's left of this year.
In other words, that is saying the Fed will surely deliver a 50 bps at one meeting with consideration of another in the other remaining two. Are market players getting too carried away here?
It all comes down to what the Fed has to say on Wednesday and if there will be any push back. If so, it will be interesting to see how markets react to that after the latest pricing moves last week.
After the FOMC meeting, there will be the BOE and BOJ policy decisions to follow later in the week. Both central banks are not expected to make any changes to their policy settings though.
For the BOE, there might be room to cut moving forward so long as inflation continues to trend downwards. But policymakers haven't been too pushy about the issue just yet. As for the BOJ, well they've been saying that market conditions are still too volatile for them to do anything at the moment. I mean, they don't want to rock the boat too much after having already done so at the end of July and early August.
As such, the BOE and BOJ outcomes are likely to be less eventful as compared to the Fed this week.
Besides that, the PBOC is also one to watch as they will be making a decision on the LPR on Friday.