This week is all about what central banks aren’t going to do, but also the limited impact of what they’ve done already. The FOMC meeting in the US unlikely to produce a change in policy. Market pricing is now only places a 20% chance of a hike in rates this week and just over 50% chance of a hike before the year end. This could mean that the Fed chooses to come out with a steady rate decision, accompanied with a slightly hawkish statement, so as to effectively modestly tighten policy via their communication efforts. But even this may be a tough act to pull off. The Fed has been caught out once too often acting tough, but not following through (but mostly for good reasons), so this could ultimately prove to be a futile tactic.
Before then, we should see a relatively slow start to the week, with no key data releases on the calendar and the pattern of trading activity relatively steady during the Asia session. Equities were modestly firmer for the most part, whilst the dollar was in retreat against most currencies ahead of the Fed meeting. Don’t forget that the Bank of Japan also meets this week, where they will also publish an assessment of their policy measure undertaken to date, including the move to negative interest rates. The scope for further easing remains, but the probability looks low for the meeting this week.