August FX Consensus Forecast

August FX Consensus Forecast

2 minute read

Central Banks changing their tune on Monetary policy?

An action-packed July concluded with the Federal Reserve (Fed), European Central Bank (ECB), and Bank of Japan (BoJ) each taking the stage for the final time until September, and each seemingly changed their tune on monetary policy to varying degrees - or at least that's how markets interpreted them.

For starters, the Fed delivered another 0.25% rate hike after their July monetary policy meeting, which was widely expected by markets, particularly after they telegraphed two more rate hikes for 2023 following their June meeting.  However, comments from Fed Chair Jerome Powell were slightly less hawkish than some of the more recent press conferences, and markets interpreted this to mean that another rate hike this year may not be a foregone conclusion – particularly in September. 

According to Powell: "it is certainly possible" the Fed would raise rates again in September, but also added the Fed could also "choose to hold steady at that meeting." He emphasized that the Fed would take a data-driven approach to their September decision, paying particular attention to inflation and the labor market.  While acknowledging the positive trend in inflation as of late, Powell also noted there is still a long way to go to bring inflation down to the 2% target.

Like their US counterparts, the ECB elected to raise rates by another 0.25%, but ECB President Christine Lagarde was non-committal about another increase in September.  This is a departure from previous months, where Lagarde and Co. have been decisively hawkish and have been telegraphing future rate hikes for some time as the Bank continues to battle inflation across the Eurozone.  

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