This Week In Central Bank Meetings

December 14, 2020

By Orbex

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.

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.

BOJ’s to Extend Measures?

The major announcement we can expect from the BOJ amounts to housekeeping but could influence the markets.

The consensus is that they will extend their current package of easing measures, designed to improve access to credit. The package is scheduled to expire in March, but given the uncertainty of increasing covid cases, the expectation is that the BOJ will like to reassure markets.

There are a small number of analysts expecting no action whatsoever from the BOJ. They are waiting until the meeting in January for more data.

But, it’s pretty much a foregone conclusion at this point that the economy won’t recover by March, and the discussion is only a matter of how long the measures will be extended.

The quicker the extension, the more market confidence, and the more likely the yen will weaken.

Switzerland to Stay Safe?

There is near-unanimous consensus that the SNB will keep rates where they are, and not change policy.

Past experience suggests they don’t see any benefit from going into further negative rates. And they already have plenty of headroom to buy assets as needed.

The latest increase in covid cases, though, has made the currency even stronger, much to the annoyance of the SNB. However, no analyst currently expects the bank to directly address the issue beyond their constant complaint that the currency is too strong.

There isn’t much expectation of volatility after the meeting.

Norges to Follow the Leader?

We expect no major change in policy from the Norges Bank. However, we could get some market volatility from Governor Olsen’s press conference.

The issue is that as the ECB put out more stimulus last week, the Norges is expected to keep pace. But, given the situation with the vaccines, there is hope that the markets will normalize soon. In that case, a more cautious approach will be warranted.

Analysts are going to be looking at how Olsen splits the difference in the press conference afterward.

There are many who lean towards Olsen announcing that the Norges is expecting to raise rates sooner than before. This is thanks to the expected recovery post-vaccine. However, given that we are only at the start of the vaccine roll-out, Olson might not mention that.

Final cut from Banxico?

Consistent with projections for Mexico’s reference rate to reach 4.0% by the end of the year, there is a majority of economists projecting the Banxico will cut rates at the next meeting.

Through the year, the bank has become more dovish, and President Lopez has added a third new member inclined towards easing.

The expectation for a bump up in inflation next year hasn’t dissipated. Given that scenario, there is a chance the bank might not want to cut rates and have to raise them again so soon.

The peso tends to strengthen over the holidays and weigh on inflation; a rate cut could send the exchange rate in the other direction.

By Orbex