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On October 13, the International Monetary Fund (IMF) warned UK Chancellor of the Exchequer John Healy to use cost-of-living assistance measures "prudently," otherwise facing the risk of renewed inflation. The IMF stated that heavily indebted countries like the UK should limit any relief measures to a "targeted and temporary" scope to avoid increasing the difficulty of curbing price increases. The IMF projects that UK economic growth will be better than previously expected, with an average inflation rate of 3.3% this year and 2.8% in 2027. Meanwhile, the UK is close to achieving its goal of sustainable public finances.On October 13th, the International Monetary Fund (IMF) stated on Tuesday that despite anticipated slowdowns in Japanese economic growth, the Bank of Japan (BOJ) is likely to gradually raise interest rates, bringing them "closer to a neutral level." This policy path is similar to that of other central banks facing inflationary pressures. In its World Economic Outlook report, the IMF stated, "Japans economic growth is projected to slow to 0.7% in 2026, with fiscal support measures partially mitigating the impact of rising energy prices. As the energy shock subsides and monetary policy gradually normalizes, economic growth will stabilize at this level in 2027." Japans economy grew by 1.2% last year, and the IMF projects growth of 0.7% in both 2026 and 2027. The IMF did not name any specific country, but noted that monetary policy can only remain unaware of the direct and short-term indirect effects on inflation if the shock is temporary. The report pointed out that even if the impact of the shock can be temporarily ignored, central banks may still need to raise nominal interest rates to maintain stable real borrowing costs if inflation expectations rise.IMF Chief Economist: Achieving this goal will require a lot of work, but it is crucial for the resilience of the economic recovery.Goldman Sachs: We believe that Russias announced diesel release will have no significant impact on global diesel prices.IMF chief economist: Fiscal space must be restored and supply-side resilience must be rebuilt.

Dow Jones, EUR/USD, USD/JPY, AUD/USD, GBP/USD, EU CPI, BOJ, and US GDP for the Week Ahead

Drake Hampton

Apr 25, 2022 10:49

For the fourth consecutive week, the Dow Jones Industrial Average (DJIA) fell nearly 2% as risk sentiment deteriorated rapidly into the weekend. The catalyst appeared to be a discernible increase in the Fed's rhetoric about significantly tightening policy in response to soaring inflation that threatens to undermine the economic recovery. Rate traders responded by increasing their bets on 50 basis point rate hikes via overnight index swaps, which currently price in complete 50 basis point raises for the next three FOMC meetings. The preliminary gross domestic product (GDP) growth rate for the United States is scheduled to be released on Tuesday, which will indicate how much the economy increased in March.

 

This resulted in a rebound rout in Treasuries, which spread to the rest of the world's financial markets. Government bond yields increased across the board, from UK Gilts to German Bunds. The French election this weekend may result in some European bond repricing, but the impact is likely to be minor in the event of a Macron victory. A Le Pen triumph, on the other hand, would almost certainly have a rattling effect, although polls indicate that is an improbable prospect. Eurozone inflation data for the first quarter may spark some volatility trading in EUR/USD. According to a Bloomberg survey, economists anticipate Q1 core inflation to be 3.1 percent year on year.

 

The risk-sensitive Australian and New Zealand Dollars fell against the Greenback in the Asia-Pacific region. Australia is expected to release its first-quarter inflation figures, with analysts anticipating an increase to 4.6 percent from 3.6 percent year over year. A stronger-than-expected reading could spark a recovery in the battered AUD/USD pair. A broad decline in metal prices weighed on sentiment around the Australian Dollar, which remains under pressure due to continued Chinese lockdowns.

 

USD/JPY could witness a turnaround following Thursday's Bank of Japan policy meeting outcome. The central bank has been assertive in recent months in attempting to contain bond yields, and no adjustment in the benchmark rate is expected this week. However, a change to the central bank's inflation targets may result in some currency repricing. Last week, options traders began to unwind bearish bets on the Yen, as demonstrated by a decline in one-week risk reversals. Another significant focus is the Bank of England's rate hike bets, following a bad batch of statistics that put doubt on the United Kingdom's economic recovery, with retail sales and PMIs falling short of expectations.

Weekly Performance of the US Dollar Against Currencies and Gold

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