The FX Trader: First Warsh-led FOMC tops central bank bonanza this week.

Here are brief previews of each of this week’s central bank meets.

RBA (Tuesday 0430 GMT):

What is priced in: The market has recently shifted to a much longer wait-and-see period for the RBA after the bank made it clear at the last meeting (and the three consecutive hikes) that it wanted to take some time to assess the impact of hikes. Now the market is wondering whether the last hike is in – with only half a hike in total priced into the next few meetings.

Thoughts: The RBA has possibly overplayed its hand with the three prior hikes – strong bias for a “wait and see for now” message from the RBA. At the same time in the background we have the Anthony Albanese government trying to engineer a policy mix to defuse the rise in Australia housing prices, which could bring some trauma to the Australian growth outlook via a negative wealth effect if these policy moves trigger a housing market correction. Very divided opinions on this – so far there has been a general capping effect on house, together with slightly negative trend in some key markets like Sydney.

Surprise potential: Any potential to surprise is likely to the dovish side, but there has already been a dovish shift, so the bar is quite high for this to spark major action.

BoJ (Tuesday, likely between 0200 and 0300 GMT but can be slightly earlier or later):

What is priced into the forward curve: The Bank of Japan is a lock to hike the policy rate 25 bps to 1.00%, the highest policy rate since 1995. Beyond that, another hike is seen likely by year end, either in October, or more likely December.

Thoughts: It’s an unusual situation as we have BoJ Governor Ueda in the hospital, only issuing a statement and not present at the BoJ meeting (which saw three hawkish dissenters at the prior meet). Watch for language around reactivity to yen weakness as the Ministry of Finance has gone very quiet after its large intervention efforts started around the 160+ level previously. Meanwhile, Japan’s inflation readings for both the headline and core have been collapsing this year, even all through the initial months of the Iran war. And now add to that the big sell-off in crude oil prices as it looks like Trump wants to do everything he can to back out of the war on almost any terms. As noted above, the yen may only begin rallying organically on both lower global bond yields and risk off. Failing that, preventing the JPY carry trade from continuing and pressure on a weaker currency might require government policy changes that impact how Japan’s savers allocate their funds – essentially some form of capital controls, lite or heavy. No sign of that yet from the Takaichi government.

Surprise side: Little potential? The surprise potential policy wise rests mostly with the Takaichi government and Ministry of Finance, with that surprise potential fading as long as inflation prints continue to come in soft.

Sweden’s Riksbank (Wednesday 0730 GMT)

What is priced into the forward curve: Unlike the ECB, Sweden’s Riksbank is priced to maintain its lowly 1.75% interest rate for now, only possibly hiking in August or later, with only one full hike priced in through the early November Riksbank meeting.

Further thoughts: The Riksbank has taken a go-slow approach as Sweden’s inflation levels are very orderly this year, only picking up to an incredibly lowly 0.8% year-on-year at the headline for May and at 1.5% at the core.

Surprise side: Some mild hawkish potential here if the Riksbank views the SEK weakness of late with a bit of wariness (even if not explicitly mentioning the currency), so there could be some more “optionality” in the language for policy tightening that reads hawkish.

US FOMC meeting (Wednesday at 1800 GMT)

What is priced into the forward curve: Important to underline that market pricing feels somewhat irrelevant as there is a lot of uncertainty on the new Fed Chair’s communication style. The market has been dragged into predicting a possible hike by the end of the year even after the last meeting retained the easing bias in the statement.

Further thoughts: Main point of curiosity is around new Fed Chair Warsh’s communication style. As a Wall Street Journal op-ed from Sunday says “Kevin Warsh Wants the Fed to Stop Explaining Everything”. This likely means an eventual halt to further quarterly dot plot projections and maybe even the economic projections. Indeed, Warsh’s distaste for the outdated “forward guidance” policy and excessive transparency stemming from the ZIRP/GFC/Bernanke era is understandable and long past its sell-by date. It’s quite possible the June dot plot will be the Fed’s last. Still, Warsh does not have a majority of fellow Trump nominees on the Fed Board of Governors and whether this era starts with a bang or a whimper is key. The style of the statement and his style at the presser will be critical. If removing forward guidance is the new name of the game, we should look for the new statement to shed the former “easing bias”. An additional possible initiative could be the announcement of a review of the Fed’s communications framework. But that doesn’t mean the new statement will necessarily read hawkish relative to current forward market expectations. With market implied volatility very low, there seems little anticipation of this event risk – but does that also mean a low bar for surprises?

Surprise side: Very difficult to see what could prove hawkish, even if shifts that “remove easing bias” initially read algorithmically as knee-jerk hawkish. This is an overall transition to less transparency, not necessarily a hawkish shift relative to what is already priced in. The lean longer term is for a weaker US dollar, but near-term path unclear. If we look over at speculative positions in short-term interest rates, positioning is already very bearish (biased for higher FOMC rate).

Switzerland SNB (Thursday 0730 GMT)

What is priced into the forward curve: If you look far enough forward, the market has bought some optionality that the rate hike elsewhere will see the SNB hiking somewhere in the first half of 2027 – remember that the current policy rate is 0.00%, the world’s lowest and is encouraging carry trading using CHF as a funding currency.

Further thoughts: It is hard to have further thoughts about the SNB, which is very much sitting on its hands and likely happy to see the CHF weakening of late, not wanting to make any fuss here as inflation is benign at 0.6% YoY headline in May an 0.3% YoY at the core (!).

Surprise side: I don’t see why the SNB should spark notable volatility in either direction.

Norway Norges Bank (Thursday 0800 GMT)

What is priced into the forward curve: Very low odds of a hike at this meeting and only slightly higher for the following meeting, with firmer expectations of another rate hike by year end (current policy rate at 4.25%).

Further thoughts: Few, really. It is bearish NOK at the moment that energy prices have corrected sharply, but at the same time, the currency can trade pro-cyclically and lower energy prices are a relief for the rest of Europe. Not sure this meeting weighs heavily for NOK.

Surprise side: After the hawkish surprise at the last meeting in bringing the anticipated rate hike forward, and with NOK having surged as much as 10% versus the Euro since Mid-December to multi year highs, there is modest potential for the Norges Bank to lower its longer term rate forecast, but this may not do the NOK much damage if risk sentiment is steady as it has already consolidated lower.

UK Bank of England (Thursday 1100 GMT)

What is priced into the forward curve: Virtually nil expectations for a hike at this meeting. Guidance for July is important as that meeting priced at 30% likely for a hike and 20 bps priced into September meeting.

Further thoughts: Let’s recall that as recently as a month ago, the BoE was expected to hike at this week’s meeting, but now the first rate hike of a new cycle has disappeared over the horizon to “possibly” July and “likely” September, with falling crude oil prices pointing to a lack of any fresh urgency to energize rate hike talk again.

Surprise side: Slightly dovish relative to current July hike expectations at about 30% (that was Friday, with crude oil lower, likely to fall further ahead of meeting), though we have already seen a big climb-down in expectations from the BoE overall since the last meeting. This leaves the bar quite high for a surprise outside of possibly reducing July odds. Politics in the UK is likely to drive bigger surprises in the coming weeks as Starmer’s days as PM may be numbered.

FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.

The biggest signals here in terms of the momentum shift are in precious metals space to the positive – but gold needs 4450-4500 to reverse the recent sell-off versus the USD. The ongoing CNH up-trend is the strongest overall trend. The USD reversal is very modest so far, and big FOMC event risk ahead.

Table: NEW FX Board Trend Scoreboard for individual pairs.

What to do with these positive trend signals like EURJPY flipping to positive today when we have the threat of intervention from Japan’s Ministry of Finance. With such low volatility, most trending flips feel very fragile, adding little information value here.