This Week In Central Bank Meetings

In terms of monetary policy, we’re closing out the year with a lot of activity.

Many of the important central banks meet this week to set policy over the holidays. This could set forex trends for the next month.

We are approaching a regular period of lower liquidity in which the markets tend to behave somewhat out of their usual patterns. This might be the best opportunity for many traders to get their portfolios in order before the end of the year.

The general theme for most central banks is to stay put on policy, with potential market reaction from commentary.

As covid case numbers go up across the northern hemisphere, most central banks are close to the limit of providing all the help they can.

Now it’s just a matter of hoping that the economy doesn’t slow down too much as we wait for the vaccine.

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Image Source: Unsplash

Will the Fed Twist?

The consensus is that the Fed will keep policy as is, and wait to see how the economy evolves.

The market appears to be pricing in that scenario at the start of the week. However, the Fed is also peeved at the Treasury for cutting back emergency lending.

And, with the lack of a stimulus deal in Washington, the bank might want to start buying assets further down the curve. This is called “Operation Twist” and members already discussed it at the last meeting.

The objective of the measure is to provide more longer-term liquidity for the market. But, depending on how they communicate it, it could cause a negative reaction in the market (think 2013’s Taper Tantrum).

The UK to Step Up Stimulus?

We’re expecting the BOE meeting to be quite a nail-biter.

Besides the pandemic, this is the last meeting before the Brexit deadline. The BOE says they are ready, but it’s an unprecedented event, even if firms and finances have had several years to prepare.

The consensus is that the BOE will keep rates and policy the same, wanting to keep their powder dry for any eventuality at the end of the month.

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