Welcome to the weekly market review by ETM Analytics and TreasuryONE, featuring insights from TreasuryONE’s currency strategist, André Cilliers. This week, monetary policy is the focal point, with significant decisions expected from the Federal Reserve, the Bank of England, and the Bank of Japan. The discussion starts with the Federal Reserve’s upcoming announcement, noting steady PCE inflation and a cooling labour market, which may lead to a rate cut in September rather than this week. The potential for a dovish statement from Fed Chair Powell is also considered, despite a 70% chance that rates remain unchanged.
The review shifts to the Bank of England’s policy decision expected on Thursday, with the market predicting a 25 basis point rate cut. This move is anticipated to signal the beginning of gradual cuts in the UK, driven by recent governmental changes and prevailing optimism. Conversely, Japan’s monetary policy aims for an interest rate hike, albeit a modest one, with expectations set at 10 or 15 basis points. This divergence in monetary strategies between the East and West underlines a critical week for global economic trends.
André emphasises the importance of these monetary policies in shaping world economic growth and their impact on currency values, particularly the US dollar and South African rand. The Bank of Japan’s decision holds potential volatility for high-risk currencies like the rand. With the focus on monetary policy, the discussion steers clear of detailed graphs, instead highlighting the broader economic implications.
Looking ahead, the market anticipates a tight trading band for the rand, between 18.00 and 18.50 short-term, and 17.50 to 18.50 for the rest of the year. The outcome of the Fed and Bank of Japan meetings will heavily influence these forecasts. The session concludes with an optimistic outlook for improved economic news for South African consumers by September.