21/09/16 - Central Bank Divergence - Federal Reserve and Bank of Japan


The dollar edged up against a basket of currencies on Tuesday as investors awaited the outcomes of Federal Reserve and Bank of Japan policy meetings that will conclude on Wednesday. Investor expectations are low that the Fed will raise U.S. short-term interest rates, but investors will listen closely to Chair Janet Yellen's speech on Wednesday for any hint that the U.S. central bank could hike rates as soon as December. In contrast the BOJ will be looking to expand their monetary policy to boost economic activity in Japan. 


Worries about the political and economic risks from Britain's pending exit from the European Union drove sterling to a five-week low on Tuesday in markets thinned by anticipation of U.S. and Japanese central bank meetings. While the economy appears to have so far ridden out the aftermath of June's vote better than financial markets had expected, the past week has brought the first serious discussions of the terms on which Britain will leave. There was no obvious catalyst for Tuesday's moves but dealers said it was big-picture worries over Brexit. This week's big focus is the Bank of Japan and U.S. Federal Reserve meetings both ending on Wednesday.

The sharp fall in sterling since Britain voted to leave the European Union has encouraged tourists to go on a spending spree, providing a little relief for the economy as it faces an overall sharp slowdown. Foreign visitors have helped boost high street sales since the referendum on June 23, Britain's official statisticians say. The Brexit effect might also be helping Britain to lure visitors away from other European countries. Tourist spending on luxury goods in Britain in August rose by 36 percent while in France it fell by 20 percent.


Chancellor Angela Merkel’s party was dealt another blow in a regional election, posting its worst result in Berlin since the end of World War II as the anti-immigration Alternative for Germany extended its challenge to the political establishment by siphoning off voters. Electoral successes by the AfD in a string of state votes are roiling politics in Europe’s biggest economy after last year’s record influx of asylum seekers, which has dragged down poll ratings for Merkel and her party. The chancellor will address the result at a news conference on Monday afternoon.


Key Announcements

05:18 - JPY - BOJ Policy Rate
15:18 - JPY - Monetary policy statement

07:30 – JPY - BOJ Press conference

15:30 – USD - Crude oil inventories forecast at 3.2M against a previous of -0.6M

19:00 – USD - FOMC economic projections

19:00 - USD - FOMC statement

19:00 - USD - Federal Funds rate

19:30 – USD - FOMC Press conference