Super Thursday
- SNB, Norges Bank, and BOE policy rate decisions are up next. Norges Bank and BOE are widely expected to stand pat. We anticipate the SNB to surprise with a 25 bp cut.
- Bank Indonesia is expected to keep rates at 6.25%. Risk is a hike.
- New Zealand Q1 GDP growth overshoots forecasts but details were soft.
USD has bounced-off this week’s lows. In our view, the year-to-date USD uptrend is intact in part because there is room for Fed funds future pricing to converge towards the FOMC’s projections for only one cut this year.
The Atlanta Fed's GDPNow model is still tracking Q2 growth at a robust 3.1% (seasonally adjusted annual rate), unchanged from June 7. Next update comes today after the May housing starts data (1:30pm London). The US Q1 current account, weekly jobless claims, May building permits and June Philadelphia Fed business outlook survey are today’s other data highlights.
CHF is outperforming ahead of the Swiss National Bank (SNB) close-call interest rate decision (8:30am London). The swaps market implies 67% odds of a 25 bp rate cut to 1.25%. A Bloomberg poll shows a narrow majority of 16 analysts predict no change while 12 analysts look for a 25 bp cut.
Our base case is the SNB delivers another 25 bp policy rate cut which can briefly weigh on CHF. Swiss inflation remains well under 2% and is tracking the SNB’s March forecast. We don’t expect material revisions to the SNB’s new inflation projection in part because of the recent recovery in the trade-weighted Swiss franc exchange rate.
The Norges Bank is widely expected to keep the policy rate at 4.50% (9:00am London). Updated macro forecasts will be released, where the focus will be on the extent of the upward revisions to the Norges Bank policy rate projections. In March, the Norges Bank anticipated to gradually start easing from Q3. But the Norges bank warned at its May meeting that a tight monetary policy stance may be needed for somewhat longer than previously envisaged. The swaps market implies about 40% probability of a rate cut over the next six months and sees between 50 and 75 bp of total easing over the next 12 months.
The BOE is widely expected to leave the policy rate at 5.25% (12:00pm London). BOE Governor Bailey warned last month (before UK Prime Minister Sunak called a general election for July 4) that a June rate cut is “neither ruled out nor a fait accompli”. However, a surprise rate change during an election campaign is highly unlikely.
Importantly, we anticipate the BOE MPC vote split to remain 7-2 in favour of no rate change with Dave Ramsden and Swati Dhingra voting again for a 25 bp rate cut. We also expect the BOE to reiterate that “monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term.”
There is no BOE post-meeting press conference today. However, the minutes of the meeting will offer more colour behind the policy decision. There are also no updated macroeconomic projections associated with this meeting. The next update will be at the August meeting.
Our base case is for the BOE to start easing in August which can further weigh on GBP. Nevertheless, the risk is the BOE pulls the trigger later because UK services inflation is running above the BOE’s projection. The swaps market is pricing only 34% odds of a 25 bp BOE rate cut in August while a similar cut in September is 78% priced-in.
Bank Indonesia (BI) is expected to keep rates at 6.25% (8:20am London). The risk is BI raises rates 25 bp to 6.50% to stem the decline in the rupiah and help prevent imported inflation. BI noted recently that it expects USD/IDR to remain manageable below 16,300. USD/IDR is currently higher above 16,400.
NZD had a kneejerk upside reaction following better than expected New Zealand Q1 GDP growth. Real GDP grew 0.2% q/q (consensus: +0.1%) after shrinking -0.1% in Q4. Growth was driven by rental, hiring, real estate services and electricity generation. The increase in Q1 real GDP matched the RBNZ forecast, but the details were soggy. The services industries (which accounts for 73% of the economy) fell 0.1% and real GDP per capita declined 0.3%.
The RBNZ has a first policy rate cut penciled-in for Q3 2025 partly because New Zealand services inflation is receding slowly. In contrast, the market has fully priced in a cut this November. That’s about right in our view which is a headwind for NZD. The decline in the ANZ Own Activity Outlook index to a ten-month low in May points to weaker growth.
BRL rallied a little after Brazil’s central bank “interrupts the easing cycle.” The bank kept the policy rate at 10.50% (in line with consensus) and stressed “that monetary policy should continue being contractionary for sufficient time.” Also, the decision to stand pat was unanimous. According to the Committee, the uncertain global and domestic scenarios “require greater caution.” The swaps market is pricing about 140 bp of total tightening over the next twelve months on Brazil’s worsening fiscal outlook. President Lula da Silva indicated last week he is not considering spending cuts to address growing fiscal concerns.
