As many traders and analysts have pointed out recently, markets are driven by more by politics rather than central banks lately. Nevertheless, the concentration of investors will now focus on the decisions of the ECB, the Bank of England and the Turkish Central Bank. It is likely that central bankers will pay attention to the weakness and vulnerability of financial markets this year.
From the ECB and the Bank of England we can expect to continue the course of monetary policy in the backward direction of the Fed, while in contrast Turkey's Central Bank can take important decisions to curb inflation and raise interest rates.
The ECB's concerns are likely to be related to the crisis in Turkey because they have exposure there, while Bank of England is likely to concentrate on the EU exit process and the risks stemming from it.
The decisions will be followed at 14:00 by Bank of England and the Turkish Central Bank at 14:45 ECB and 15:30 Mario Draghi's press conference. /all times in GMT+3/
What will we watch during the meetings?
Bank of England: Every vote is important
The UK central bank raised its key interest rate to 0.75% last month, the highest level for almost a decade. Officials are not expected to raise rates again next year, given Britain's plans to leave the EU in March. Still, investors will look closely at the breakdown of votes from the nine-member Monetary Policy Committee. This could give an idea of how a recent acceleration of economic growth and wages can affect expectations of the next increase in interest rates. The Pound reached resistances by most cross pairs, and today's meeting is more likely to be short-term negative for sterling.
New forecasts for the euro area
The ECB's latest quarterly forecasts for economic growth and inflation to be published today will be carefully monitored because they could affect how quickly the central bank will stop its QE program. The central bank expects to end this year's massive bond purchase program and may start raising interest rates. This may be delayed if inflation is too weak. The last five meetings of the ECB were negative for the EUR, and this scenario is likely to happen today and the single currency will see a decline in its crosses.
Italian borrowing costs have jumped this year, as investors are worried about the new populist government in the country. In particular, the government may cause confrontation with the EU authorities in Brussels. ECB President Mario Draghi will probably try to get out of the dispute, but according to analysts, the central bank may be forced to react if problems arise with banks in Italy or other bond markets in the eurozone.
Will we catch the falling Turkish lira
In Turkey, the question is not whether the central bank will raise interest rates today, but how much. The central bank pledged to operate last week when August's statistics showed that inflation was above the base rate of 17.75%. The central bank is also under pressure to protect the country's currency, which has fallen by more than 40 percent since the beginning of the year against the US dollar. Despite the negative picture, raising interest rates today is likely to support short-term TRY.
How much is the Turkish Central Bank independent?
Analysts and investors are wondering to what extent Turkey's central bank may oppose President Recep Tayyip Erdogan's request to continue to maintain the Turkish economy with cheap credit. Despite repeated assurances by the Turkish government that the institution is independent and focusing on its mandate to fight inflation, such claims are likely to increase, analysts say as the Turkish economy is slowing down.
Original Post: Five Things to Watch at Thursday’s Central-Bank Meetings
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