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Federal Reserve Pushes Off Rate Hikes

Central Banks Hold Steady as Brexit Risks Increase


Central bank decisions last week saw no monetary policy changes, with little being offered in terms of forward guidance. With the UK's EU referendum vote due this Thursday, markets are likely to see a lot of volatility.

Weekly Review


Central banks dominated the news last week, with the Federal Reserve, Bank of Japan, Swiss National Bank and the Bank of England all leaving monetary policies unchanged - with some sending subtle warnings on the upcoming UK referendum vote.

The Federal Reserve left interest rates unchanged at 0.50% as widely expected. Staff Economic Projections showed that some Fed members are still hoping for two rate hikes this year while GDP forecasts were trimmed.

The Bank of Japan's Governor Kuroda did not specify much, but the BoJ voted 8 - 1 to keep policy unchanged. The BoJ Governor touched upon GDP growth, noting that economic expansion was taking place at a moderate pace but that inflation could risk falling to or below zero percent in the near term.

The Swiss National Bank’s statement said that it was not ruling out another cut, to a rate that currently stands at -0.75%. The bank also gave a clear warning to the markets that it was closely monitoring the Brexit referendum and that the it would stand by to intervene in the currency markets if the Franc appreciates too rapidly.

The Bank of England was also unanimous in voting to keep rates steady at 0.50% and said that the risks of a vote to leave the EU could spark domestic and global financial turmoil. The BoE has already drafted contingency plans into the referendum.

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The Week Ahead


Economic data for the week ahead is relatively light but the one theme that will resound over the week will be the UK's EU membership referendum vote. Eligible voters head to the polls on June 23, leaving the pound sterling and the euro especially vulnerable to any opinion polls or referendum related news flows. Safe haven assets including gold and yen are also likely to be affected.

Brexit referendum aside, the week ahead will also see Federal Reserve Chair Janet Yellen testify to the US congress on Tuesday and Wednesday. Investors will be looking for any clues on forward guidance from Yellen, but it is unlikely that she will offer much given the proximity to the referendum vote.

Economic releases across the board are relatively quiet save for the Eurozone's flash PMI numbers. In the US, durable goods orders will the main economic release to watch out for.

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