Calm Before The Storm in Markets

After the People’s Bank of China maintained its lending prime rate on Tuesday, the yuan stayed unchanged. The central bank must find a difficult balance between relaxing monetary policy and halting additional declines in the yuan, which is weak and trading close to two-year lows.

Amid news on Tuesday that core consumer inflation surpassed an eight-year high in August, the Japanese yen likewise made no movement. Even as the yen plunged to 24-year lows, the Bank of Japan, which will meet later this week, has so far demonstrated little willingness to hike rates from negative levels.

Week of central banks

Awaiting the actions of central banks, the financial markets will probably continue to be in a waiting mode. The US Federal Reserve, the Bank of England, the Bank of Japan, and the Swiss National Bank are just a few of the over fifteen central banks scheduled to make decisions this week.

Although it is largely anticipated that the US central bank would increase interest rates by 75 basis points (bps), markets are also taking into account the remote chance of a complete 100 bps increase in light of hotter-than-expected U.S. inflation data last week.

The Federal Reserve has increased interest rates four times so far this year and is expected to announce further increases now that inflation has reached 40-year highs. Rising US interest rates are anticipated to have a negative impact on economic expansion, dampening investor enthusiasm toward risky assets.

Later today, US housing starts, and building permits will be released, expected to decline again in August, showing that the US housing market is deteriorating. 

Additionally, Canadian inflation data are due, likely causing volatility in the USDCAD pair.