It’s another big week for central bank decisions and important data releases with ten gatherings of policymakers from around the globe. The Fed meeting will take centre stage, even though the world’s most powerful central bank is set to stand pat and leave rates unchanged at 5.25% to 5.50%. But with the US economy still ticking along and upside data surprises on a weekly basis, the FOMC is likely to keep the door open for future rate hikes.

Policymakers will also publish their latest economic projections. Any changes to these will be important, with one more rate rise expected to be left in for this year. Markets will also focus on the 2024 forecasts to see if the recent solid data forces a reduction in the 100bps of rates cuts which were projected in the prior median dot plot from June. This would not come as a surprise to investors but could further discourage bearish positioning in the greenback. The dollar enjoyed a ninth consecutive week of gains, having risen over 5% since the lows in mid-July. Prices are overbought again on the daily RSI indicator which warns of some consolidation.

We get the Bank of England rate decision on Thursday which is preceded by the latest inflation numbers out of the UK. Policymakers on the MPC are definitely most concerned about wage growth and services inflation which remain around record high levels. However, there has been a more dovish tilt by officials recently with Governor Bailey saying that we are now near the top of the hiking cycle and the fall in inflation is expected to continue with a substantial amount of transmission still to come through. The “dovish hike” from the ECB has also hit BoE rate hike expectations with now just over 30bps to a peak, a 40bp correction over the past month. This has hurt sterling which broke to the downside last week below its 200-day simple moving average.

The Bank of Japan is the final major central bank meeting which wraps up the week on Friday. We won’t get any surprises after the bank recalibrated policy in July by shifting to a more flexible approach to guide its yield curve control policy. This surprise caused major volatility initially, but officials have continually reiterated that it is appropriate to maintain easy policy for the time being. That said, there have been more hawkish noises around inflation more recently. The yen has suffered at the hands of rising US yields and soaring oil prices with USD/JPY testing the highest levels of the year. A break north only needs a mildly hawkish Fed and a cautious BoJ, though elevated Japan CPI data on Friday may also have a say in the BoJ’s decision.  

Major risk events of the week:

19 September 2023, Tuesday

-RBA Minutes: The bank kept rates unchanged at this meeting as widely expected. Governor Lowe’s final meeting at the helm should provide no surprises. Higher rates are working but further tightening may be required. A pause will provide time to assess both the impact of rate hikes and the economic outlook. The aussie has been consolidating recently around 0.64. Resistance sits around 0.6521/22 and support at 0.6357/64.

-Canada CPI: Key will be any signs of disinflation with headline inflation currently running at 3.3% y/y and core at 3.2% y/y. BoC chief Macklem recently lamented that inflation was still too high and there was little downward momentum in underlying consumer prices USD/CAD hit resistance at the May top at 1.3667. Prices have dropped out of the bull channel from the July lows. The 200-day SMA is at 1.3462.

20 September 2023, Wednesday

-UK CPI: Consensus sees the headline increasing one-tenth to 7.0% while the core print is expected to drop one-tenth to 6.8% in August. The prior release saw the all-important services inflation tick up to 7.4% from 7.2%. A big downside surprise would put the BoE hike on Thursday under threat. Cable is bearish and stuck in a downward channel. Another soft weekly close near the lows points to more losses towards 1.23 and the May bottom.

-FOMC Meeting: The Fed is nailed on to hold rates at 5.25-5.50%. The disinflation process is ongoing while labour market demand is slowly coming into balance with supply. Focus will be on the updated economic projections and any forward-looking language which could influence the two final meetings in November and December. The chances of a rate hike by year-end are currently a coin toss.

21 September 2023, Thursday

-Bank of England Meeting: Money markets give a 75% chance of a 25bp rate hike. Wage growth and services inflation are higher than the August forecast. That means options will probably be kept open for November. But recent comments by BoE officials have laid the ground for the end of rate hikes. A “one and done” type meeting and language will see heavy selling in GBP.  

22 September 2023, Friday

–Bank of Japan Meeting: The BoJ is likely to stand pat, but there is the chance it could send a subtle hawkish message to markets after weak JPY combined with rising oil prices have pushed inflation up.

–Eurozone PMIs: Manufacturing is forecast at 43.4 from 43.5 and services at 47.4 from 47.9. The composite is seen falling to 46.2 from 46.7. These leading indicators are expected to continue showing subdued sentiment. This should hammer a nail in any more rate hike talk in December and see EUR/USD test the late May low at 1.0635.