A catch up to central banks as we get into the second-half of the year

<p>US Federal Reserve</p><ul><li>Policymakers have gotten away with a "skip" decision in June</li><li>But markets are anticipating a rate hike to follow that in July</li><li>However, there is a long way to go between now and the decision on 26 July</li><li>There will be a slew of big data to come before that, most notably the US CPI data on 12 July</li><li>Fed funds futures are showing odds of a 25 bps rate hike at ~86%</li><li>The remaining ~14% is reflecting a no change decision</li></ul><p>European Central Bank</p><ul><li>Policymakers have pretty much pre-committed to a 25 bps rate hike in July</li><li>Markets have fully priced in that decision at the moment</li><li>The big question is if they will continue tightening policy in September</li><li>The latest <a href="https://www.forexlive.com/news/eurozone-june-preliminary-cpi-68-vs-67-yy-expected-20230630/" target="_blank" rel="follow">inflation figures</a> continue to show that core inflation remains sticky</li><li>That is prompting calls in the market to anticipate another 25 bps rate hike after the summer</li><li>However, the economy is starting to slide back again at the end of Q2</li><li>The manufacturing sector is already in recession and services are beginning to stutter</li><li>If the trend continues, the ECB has to find a balance on that</li></ul><p>Bank of Japan</p><ul><li>There continues to be no policy change since new governor Ueda took over</li><li>That has resulted in yen bulls growing increasingly frustrated</li><li>As such, we have seen the yen fall dramatically against the euro and pound in particular</li><li>USD/JPY has also risen back to near intervention territory close to 145</li><li>So far, there hasn't been any major hints of change to come in the short-term</li><li>But there are certain quarters of the market eyeing a potential tweak in YCC in July</li><li>If that doesn't come, expect the yen to fall further as the market frustration grows</li></ul><p>Bank of England</p><ul><li>Inflation continues to be a problem as it remains sticky</li><li>The cost-of-living crisis is also still in effect, weighing on economic conditions</li><li>That is resulting in growing stagflation risks and the BOE has to try and navigate a soft landing</li><li>So far, policymakers are making it clear that their number one agenda is to counteract inflation</li><li>But if that comes at the risks of damaging the economy further, more rate hikes may be bad for sterling</li><li>A 25 bps rate hike for August is now fully priced in, with markets even leaning towards a 50 bps move</li><li>Odds of the latter are at ~83% at the moment</li></ul><p>Swiss National Bank</p><ul><li>The SNB continues to maintain that they are still on the tightening path</li><li>Inflation pressures are still holding and so they might continue to hike rates further</li><li>The next decision is in September though, so there is still some scope for that pricing to shift around</li><li>If other major central banks are starting to pause by then, the SNB may follow as well</li></ul><p>Bank of Canada</p><ul><li>Policymakers surprised with a rate hike in June, though the decision was rather 50-50 to be fair</li><li>However, they did remove a key passage in the forward guidance so as to open the door for pausing</li><li>It could be a case that they may wait and see in July</li><li>But it looks like markets will have to play a guessing game once again it would seem</li><li>The odds for a 25 bps rate hike is now at ~53%, pretty much a coin flip once again</li></ul><p>Reserve Bank of Australia</p><ul><li>If the RBA is looking for a reason to pause the tightening cycle, they may find no better time than now</li><li>The monthly inflation numbers for May showed some signs of easing <a href="https://www.forexlive.com/news/australian-monthly-cpi-february-56-yy-vs-expected-61-20230628/" target="_blank" rel="follow">here</a></li><li>And that is keeping markets guessing a little ahead of the decision tomorrow</li><li>The OIS market is seeing roughly ~37% odds of a 25 bps rate hike</li><li>RBA cash rate futures are seeing a July cash rate of 4.17% (+10 bps)</li><li>That indicates traders aren't really pricing in firmly a rate hike for this week</li><li>The balance of risks as such is leaning towards a hawkish surprise by the RBA</li><li>But even if they do not hike the cash rate, the aussie may still feel disappointed</li><li>Markets are looking for another rate hike in August at least, with roughly 47 bps worth more of rate hikes priced in by year-end</li></ul><p>Reserve Bank of New Zealand</p><ul><li>One of the few major central banks that pretty much is in a de facto pause mode already</li><li>Markets are not seeing any change for this month's decision</li><li>The OIS market is pricing in ~92% of that probability</li></ul>

This article was written by Justin Low at www.forexlive.com.