European Central Bank officials will meet on Friday to discuss the economy and possibly react to upcoming changes in the economy. Investors seem to expect that the ECB does not plan to change interest rate hikes.
Recent statements by Bank representatives on inflation may indicate a position that inflation could remain below 2 percent in the future, which is below the European Central Bank's target.
October 28 will also bring the Bank of Japan's decision on interest rates and the program to support the economy during the COVID-19 outbreak. The market believes that the Bank of Japan is unlikely to change policy at its upcoming meeting despite reports that its members have discussed phasing out the COVID-19-related lending program.
Fed will limit purchases but will not touch rates?
In the US, Federal Reserve Chairman Jerome Powell announced last week the Fed's willingness to start tapering bond purchases but maintained the view that a rate hike is premature as employment remains low. It seems, therefore, that the interest rate market may be prematurely anticipating a tightening cycle in global monetary policy.
The Reserve Bank of Australia wants to hold off until 2024.
A similar situation may also occur in Australia and Poland, where after today's inflation reading in the antipodes, interest rate futures indicated that traders have priced in three interest rate hikes by the Reserve Bank of Australia by the end of 2022, even though the central bank doesn't see a hike possible before 2024. - Bloomberg reported.
On the other hand, Poland's interest rate market may point to a rise in 3-month WIBOR near the 2.5 percent level as soon as three quarters from now. The current level is 0.71 percent, which means the valuation of at least 3 interest rates increases at 25 basis points each.
Global trend: there are expectations, there are no decisions
All over the world, investors can bet on which central bank will raise interest rates and how steep the increase will be. However, it is important to keep in mind that high expectations have room for possible disappointments. Central banks may take longer to raise rates, and the increase's scale may be lower than expected. This, in turn, may have a significant impact on the valuations of the individual currencies that may be affected and the stock, bond, and gold markets.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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