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Will This Week’s PMI Data Cause Problems for Central Banks?

Will This Week’s PMI Data Cause Problems for Central Banks?

When the Covid pandemic hit early last year, it triggered a very sudden and deep recession. As a result, key central banks threw the proverbial monetary policy kitchen sink at the situation, with rate cuts and enormous QE (quantitative easing) programmes being the order of the day.

However, as we see a sharp rebound in activity taking hold (partly on the back of successful vaccine programmes), the question of how and when the slowing of this financial stimulus will take shape is now at the forefront of traders’ minds. Already this month, we have seen the ECB announce how it is recalibrating its main asset purchase programme. However, the main focus of attention is centred on the US Fed and when it may taper its open-ended QE programme.

On the currency front, last week’s cautious mood on the markets benefited USD with the currency gaining around 0.7% against the euro and sterling. EUR/GBP continued its 85-86p stalemate.

As we start off this morning, EUR/GBP still holds firm near the midpoint of 85-86p. Elsewhere the greenback keeps its firmer tone with EUR/USD changing hands just above the $1.17 mark and GBP/USD is back down near to the $1.37 mark.

Looking to the week ahead, the aforementioned monetary policies of central banks will be a key driver of financial markets. The latest Fed policy meeting in the US will be the main highlight, although no policy changes are anticipated, the latest Fed interest rate projections will pose some risk to the dollar and Chair Powell’s comments at the press conference will also be under the microscope. The Bank of England is also expected to leave policy on hold, however, analysts are predicting a small rate hike in the UK early next year. A raft of other central banks meet as well over the coming days. September flash PMIs are the main data highlight this week.

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