Weekly Market Update (27 September 2021) – More hawkish tones delivered by central banks

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ByLCMS Traders FX Analysis Team

 SEP 27, 2021

(1) The U.S. Federal Reserve held its monetary policy unchanged but delivered a hawkish tone during their meeting last week. Although no announcements on quantitative easing (QE) tapering were made, the central bank’s committee felt that QE tapering “may soon be warranted” if the ongoing progress towards the central bank’s goals of maximum employment and price stability continues. Adding on to the hawkish tone, the dot plot that was released in the quarterly projection material indicated that more members are expecting rate hikes in 2022 and 2023. As a result, the U.S. dollar strengthened across the board.

(2) Similar to the Fed, the Bank of England (BoE) kept its policy unchanged and made no announcement on tapering. Nonetheless, two committee members voted for a tapering in QE. The central bank also expects inflation to rise slightly above 4% during the fourth quarter of this year. It was also reported that all committee members “agreed that any future initial tightening of monetary policy should be implemented by an increase in Bank Rate, even if that tightening became appropriate before the end of the existing UK government bond asset purchase programme,” indicating that an interest rate hike may come sooner than previously forecasted.

(3) The Canadian Federal Election concluded last week with Prime Minister Trudeau’s Liberal Party being victorious. However, the Liberal Party failed to win a majority of seats after falling short of the required 170 seats by 13 seats.

(4) The Bank of Japan and the Swiss National Bank held their monetary policy unchanged last week. Both central banks continue to maintain their expansionary monetary policy to provide ongoing aid to their respective economy.