Early Morning Call: currency markets calm before the storm

Macro overview

Equity markets in Europe opened higher, after a positive session in the US and Asia-pacific region.

Currency markets are little changed this morning, as traders are awaiting a series of central bank announcements this week. In China, the People's Bank of China (PBoC) kept key rates steady at its September fixing. As widely expected, one-year loan prime rate remained at 3.65%, while the five-year rate which is a reference for mortgages, was maintained at 4.3%.

After reading the minutes released overnight, there is no doubt the Reserve Bank of Australia (RBA) will continue to raise rates, but nonetheless said there was a case for slowing the pace of increases. "All else equal, members saw the case for a slower pace of increase in interest rates as becoming stronger as the level of the cash rate rises."

Still, after the 50 basis-point (bps) increase earlier this month, markets are still expecting another half-point hike in October.

Later this week several central banks are meeting to decide on their rates. At the last Federal Open Market Committee (FOMC) meeting in July, when the Federal Reserve (Fed) hiked interest rates by 75 basis points, Fed chair Jerome Powell said that "another unusually large increase could be appropriate" at the bank's next meeting.

US consumer price index (CPI) unexpectedly rose in August, which led the market to wonder if the Fed could hike by more than 75 basis points at its September meeting. The latest market expectations show that a majority still expects rates to rise by 75 basis points, while the latest data shows that 17% see a full percentage point increase.

On Thursday morning, the Bank of Japan (BoJ) is widely expected to keep its ultra-accommodative policy in place. The short-term interest rate is poised to remain at -0.1%, and 10-year bond yields target around 0%.

That said, the narrative of late has been more around an increasingly needed support of the Japanese yen. There is no doubt the weak yen is importing inflation.

Earlier today, Japan consumer price index (CPI) rose more than anticipated in August. The headline figure rose by 3% year-on-year (YoY), and core CPI accelerated its pace to 2.8%, a near eight-year high, exceeding the Bank of Japan 's 2% target for a fifth month in a row.

Also on Thursday, The Bank of England (BoE) will decide on its interest rates, having delayed its meeting after the passing of Queen Elizabeth II. Economists expect another 50 basis-point hike, which would take the main rate to 2.25%.

As opposed to the Fed and the European Central Bank (ECB), the BoE hasn't yet opted for a larger, one might say more courageous rate increase of 75-basis points, which is one of the reasons why GBP/USD has fallen some 15% in the past eight months.

Equities

Elsewhere on the equity market, Haleon PLC posted a 13.4% increase in revenue in the first half (H1) to £5.19 billion. Adjusted operating profit increased by 21.1% to £1.19bn.

Positive momentum seen in the first half of the year has continued in the third quarter (Q3) but at a slower pace than expected.

Kingfisher PLC, meanwhile, reported a fall of 29.5% in adjusted pre-tax profit fell by 29.5% in H1 to £472 million. Sales fell 2.8%, in line with group's expectations.