Trading the Central Bank Rate Decisions
It's fixing to be another busy week for currencies, with five central banks scheduled to announce interest-rate decisions over the next few days.
Elsa Lignos, a senior currency strategist at RBC Capital Markets, has some ideas for trading on the confabs.
"We think all five will remain on hold but the market is less sure giving scope for FX to react," she wrote in a note to clients.
Lignos argues that the ongoing turmoil in Italy and the weakness in the euro zone periphery will not be sufficient to cause the European Central Bank to take action on rates, despite growing market expectations of a move. She expects the Reserve Bank of Australia, the Bank of Canada, and the Bank of Japan to also maintain the status quo - as do most investors.
When it comes to the Bank of England, though, Lignos says a number of investors think an interest rate cut is a distinct possibility, based on the minutes from the last BOE meeting. Mervyn King, the outgoing governor, was in the minority calling for more stimulus, and in the past the BOE has tended to follow his lead. But this time, Lignos says, is different.
"With King on his way out and a range of opinions on the MPC we think the majority will still vote for no change," she says.
The meeting will take place this Thursday, and Lignos argues that if the bank stands pat on rates, it should be positive for the pound.
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