Central banks and politics are the main topics of the first week of September, which may affect in particular the Canadian dollar, the Swedish krona and the British pound. It will also be an introduction to further key events this month - the decisions of the US Federal Reserve and the European Central Bank.
The GBP/USD pair exchange rate is still in a downward trend. The chances of potential brexit without agreement increased last week, as Queen Elizabeth II agreed with the motion of Prime Minister Boris Johnson to suspend the parliament. Meanwhile, MPs are returning to work this week after the summer break and will have only five meetings to stop hard brexit and the UK's exit from the European Union before October 31 without a deal. According to the decision, the parliament will not be able to resume its meeting until October 14, i.e. just over two weeks before the planned brexit.
We can observe how serious the situation is and how it may affect the British pound after investors behavior in the currency options market. The cost of hedging against a decline in the value of the British currency over the next two months, i.e. after the official brexit, has increased for the 13th day in a row, which is the largest series of increases in history. Consequently, the expected GBP/USD volatility within this period reached its highest levels this year. Expected volatility of the pound also increased during the week and month, which may show that pairs with the British pound may fluctuate sharply within this period.
On Wednesday, September 4, the Bank of Canada will announce its decision on interest rates. The current interest rate in Canada is 1.75 percent and, looking at the market consensus, is to remain unchanged. Nevertheless, global pressure to ease monetary policy, trade war, the possibility of a slowdown in the US economy, all this can cause the Bank of Canada to speak in a dovish tone. It is also possible that it will open the way to possible interest rate cuts at the end of this year. If so, the Canadian dollar could be under more pressure.
On Thursday, September 5, the Central Bank of Sweden will also decide on interest rates. The Swedish Krona seems a very weak currency. In relation to the US dollar it weakened to the levels recently observed in 2002. In turn, the EUR/SEK exchange rate climbed to the highest levels since 2009. This obviously helps to maintain inflation in Sweden due to the rising prices of goods imported into this country. Earlier, before the global risk aversion, there were talks about possible increases by Riksbank. Now, in turn, there are many indications that the central bank of Sweden may delay this move, and the Swedish krona may lose its argument for even a correction in a long-term trend.
Daniel Kostecki, Daniel Kostecki, Chief Analyst of Conotoxia Ltd., a company from the group to which Cinkciarz.pl Sp. z o.o. belongs
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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