Last week was another week of multiple Global Central Bank interest rate decisions. The week prior, on Thursday Oct 26th, the European Central Bank (ECB) kicked off things off and held interest rates steady, ending a historic streak of 10 consecutive rate increases. The effect of these increases has certainly weighed in in Europe. Specifically in bank lending and the housing market. There are also signs of a slowing labor market along with a decline in manufacturing output.

With the anticipated pause in rate hikes globally, the investor focus is now moving to the timing of when reducing rates starts to become evident, as these global economies begin their slowdowns. In the case of the EuroZone, the economy has been stagnant for about a year now, while inflation has remained prevalent. That being said, the ECB is in a tougher position that the US Federal Reserve (Fed), as the Eurozone inflation rate is higher than the US, even though the region’s economic growth is lower than the US. The ECB is certainly paying close attention to the economic data, in order to pivot accordingly, as their data points to a more advanced slowdown in overall Eurozone countries. This is why recession fears are more of a concern in this region.

Last Tuesday, The Bank of Japan (BOJ) was the first central bank on tap. The focus was on Yield Curve Control (YCC). There was much speculation on Monday, prior to the announcement that policymakers were going to let the yield on 10-Year Japanese Government Bonds (JGBs) rise above 1%. We saw an immediate rise in JPY vs USD, as USDJPY declined to about 148.81, only to see it reverse and give back JPY appreciation, trading to a high of 151.72, during the following session, subsequent to the BOJ announcement. This quick reversal had very much to do with the BOJ’s dovish sentiment to “patiently” continue on an accommodative policy path. BOJ Governor Udea stated “he hadn’t seen enough evidence to feel confident that trending inflation will sustainably hit 2%”, which triggered a return  focus back to USD appreciation vs JPY.

The last two Central Bank announcements took place later in the week. As expected, both the Federal Reserve on Wednesday, and Bank of England (BOE) on Thursday, kept rates unchanged. In the U.S., we’ve witnessed an acceleration in longer-term yields, specifically with 10-year yields and 30-year mortgage rates, having both risen significantly since the summer. The tighter financial market conditions are acting as a substitute for rate hikes in the face of stubborn inflation. The BOE kept rates unchanged for the second straight month, but also stated they’re not in a hurry to reverse policy decisions and begin easing any time soon. BOE Governor Andrew Bailey stated” We need to see inflation continue to fall. It’s much too early to think about rate cuts”. The current market consensus, specific to the BOE, is looking for a reversal in policy sometime in Q3 2024.

Finally, the week ended on Friday, with October’s U.S. unemployment figures, highlighting slower hiring and the economy beginning to cool down. Employers added 150,000 jobs, in the month, down from the previous month’s revised 297,000. The unemployment rate rose to 3.9% from 3.8%. U.S. Rates have remained steady now, since July. There’s a growing sentiment that the Fed may be done, in terms of rate hikes. With the unemployment news on Friday, we saw a USD sell-off against the Japanese Yen (JPY), British Pound (GBP) and Euro Dollar (EUR). In conclusion, this is setting the stage for continued assessment of inflation data, while the global policymakers monitor the effects of their respective aggressive rate hike policies, related to the timing of economic slowdowns.

At TraditionData, we pride ourselves on our global footprint with local market expertise through our relationship with Tradition’s experienced broking business. We offer extensive coverage across Dollar, Yen, GBP and Euro-based products covering, FX spot / forwardsinterest rate derivatives and inflation markets. Get in touch to find out how our OTC market data products can power your business, trading and risk decisions.