On Thursday, June 20, market activity was relatively subdued as US markets were closed for the Juneteenth holiday. However, volatility is expected to increase during European trading hours as the Swiss National Bank (SNB) and the Bank of England (BoE) are set to make their monetary policy announcements. Later in the day, the US economic docket will include data on weekly Jobless Claims and Building Permits for May. Investors will also be closely monitoring comments from Federal Reserve (Fed) officials for any insights on future monetary policy decisions.
The US Dollar (USD) Index experienced modest losses on Wednesday but started to recover on Thursday as the benchmark 10-year US Treasury bond yield increased. US stock index futures were mixed in the European morning, with Nasdaq Futures up over 0.5% and Dow Futures marginally lower. The table below shows the percentage change of the USD against major currencies this week, with the USD being weakest against the Australian Dollar.
In terms of specific currency pairs, GBP/USD remained under modest bearish pressure ahead of the BoE’s monetary policy meeting. The market anticipates that the BoE will leave settings unchanged and refrain from making significant changes leading up to the July 4 election. Similarly, the SNB is expected to lower the policy rate by 25 basis points, potentially impacting the USD/CHF pair. EUR/USD showed small gains on Wednesday but faced resistance near 1.0750 and is now trading in negative territory. USD/JPY saw gains for the fifth consecutive day and continues to trade above 108.00.
Gold prices remained relatively stable on Wednesday but started to gather bullish momentum on Thursday, trading above $2,340. Central banks play a crucial role in maintaining price stability by adjusting policy rates to control inflation and deflation. These adjustments have a direct impact on consumer savings rates and borrowing costs for businesses. Members of central bank policy boards have varying perspectives on monetary policy, with some favoring loose policies to boost the economy (doves) while others prefer tighter policies to control inflation (hawks).
Central bank decisions are usually communicated through pre-issued statements and live speeches by the chairman or president, who must create a consensus among board members. The chairman’s speeches provide insight into current monetary policy and future outlook. Central banks aim to avoid causing abrupt market reactions and implement blackout periods when members are restricted from talking publicly before a policy meeting. Overall, central banks strive to maintain stability in financial markets while achieving their inflation targets.