As we now enter August after a very volatile July- what we are hoping for is some calm in the market, we do usually get a “Summer Lull”- however with Central Bank activity this month, this may not be the case. In July we saw both the Fed ad the ECB raise interest rates, with nothing further expected until September.
Onto this week, the main events are the RBA and BoE to both raise interest rates this week, the Royal Bank of Australia is expected to go first on Tuesday, with a 50bps hike, bringing their interest rate to 1.85%. On Thursday, the Bank of England is expected to raise rates 25-50bps, with 25bps priced in currently- if we see a higher hike then I would expect the Pound to move, but the direction will be entirely based on the commentary from BoE Governor Andrew Bailey and any forward guidance that is provided. A 25bps hike brings the UK’s interest rate to 1.5% which for now may be deemed acceptable, and the Central Bank may now want to see how it affects inflation before discussing any further monetary policy.
One of the major issues for the BoE is currently the state of politics in the UK, without knowing who the next PM is going to be and what they plan to do as far as fiscal policy is concerned (Rishi Sunak wants to raise taxes while Liz Truss wants to cut them)- it is hard for the BoE to know what to do next until the Government has been put in place after the new PM is chosen in September.
On Friday we have Non-Farm Payrolls for the U.S alongside unemployment data- it is expected that unemployment remains the same while we see a slightly lower number for NFPs after such a high reading last month- however, predictions are usually wasted energy with NFPs and it is better to wait and see what happens before deciding what to do next.