By Jamie McGeever
ORLANDO, Florida (Reuters) – A surprise year for investors is set to end with a monetary policy bang, with almost all G10 central banks scheduled to deliver interest rate decisions over a 10-day period on this month.
Four of the G10 central banks meet this week and five, including the Federal Reserve, meet next week. Surprisingly, four of these – Bank of Japan, Bank of England, Riksbank and Norges Bank – will deliver their policy decisions on the same day, Thursday 19 December.
The flurry of decisions and guidance will be felt keenly in FX markets, where implied volatility across G10 currencies is already at its highest level since last April.
Importantly, most of these funds go into these meetings on the back foot. Sterling is the only one that has held its own against the dollar this year, and, even then, just barely. All other G10 currencies are between 4% and 9% weaker against a greenback in 2024.
It is easy to see why implied FX 'vol' is so high going into the end of the year. Uncertainty about US trade policy following Donald Trump's election victory, rising geopolitical tensions, and the ebb and flow of monetary policy expectations are all playing their part.
On that note, in addition to the nine G10 central banks mentioned above, monetary policymakers in Brazil, Indonesia, Thailand and Colombia will also meet within the 10- today, just as market liquidity thins for seasonal reasons.
It's a different story for stocks and bonds, at least in the United States. The fear index, so-called Wall Street, and the 'MOVE' index of implicit volatility in Treasuries are at their lowest level in months. The last one is special given how much finances have moved since the US presidential election on November 5 and the policy changes that may accompany Trump's return to the Oval Office in January.
LONG VOL
Wall Street analysts are warning that the Trump administration's second agenda could cause FX volatility beyond the holiday season.
In their 2025 outlook, currency analysts at JP Morgan advise clients that “increasing” uncertainty in US policy makes the short-term strategic outlook “unpredictable”.
“2025 will not be a year for the faint-hearted to be short-sighted,” they wrote on November 28, citing President-elect Trump's tough stance on trade and his threats to impose large tariffs on some America's major trading partners.
Goldman Sachs' Karen Reichgott Fishman echoed those statements last week, noting, “this makes it a good time to assess the value of any exchange rate hedge in global portfolios “.
But before Trump is sworn in, currency traders will have to weather the looming tsunami of rate decisions this month. Mark your calendars for the end of a bumpy year.
December 10
Reserve Bank of Australia: Markets are pricing in a 90% probability that the cash rate will be kept at 4.35%, with expectations of around 70 basis points of discount by the end of next year. The RBA has not started its easing cycle yet.
December 11
Bank of Canada: Markets are pricing in a quarter-point cut and a 75% probability of a half-point move, with about 115 bps of cuts over the next year. The BOC has already cut its Bank Rate by 125 bps this cycle, the most among the G10 central banks.
December 12
European Central Bank: Markets are pricing in a quarter point, with expectations of around 150 bps of easing over the next 12 months.
Swiss National Bank: Markets are pricing in a quarter-point rate cut and a 65% chance of a half-point cut. Traders are expecting about 85 bps of discount over the next 12 months. SNB Chairman Thomas Jordan recently floated the idea that the SNB could return to negative interest rates, if necessary.
December 18
Federal Reserve: Markets are pricing in a 90% probability of a quarter point cut, with expectations of around 80 bps of easing by the end of next year.
December 19
Bank of Japan: Traders expect the key policy rate to be increased by 10 bps, and about 45 bps of tightening expected over the next 12 months.
Norges Bank: Markets are pricing in a 20% chance of a quarter point cut, with around 120 bps of discount expected over the next year.
Riksbank: Markets are pricing in a 70% likelihood of a quarter point cut, with expectations of around 100 bps of rate cuts by the end of next year.
Bank of England: No rate change is expected at this meeting, but markets are pricing in around 75 bps of easing over the next 12 months.
(The views expressed here are those of the author, a columnist for Reuters.)
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