LIVE MARKETS-How FX might react to heavy central bank week

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HOW FX MIGHT REACT TO HEAVY CENTRAL BANK WEEK

Markets are very much focused on the U.S. Federal Reserve meeting next week but rate decisions will come from all parts with Bank of England, Bank of Canada, Norges Bank and Bank of Japan announcing rating decisions.

Markets expect the Fed, Norges Bank and BoC to each cut policy rates by 25 bps, while the BoE and BOJ are likely to remain on hold.

The BoE is also expected to announce it will slow the pace of quantitative tightening over the next 12 months to 50-60 billion pounds ($149.08 billion) from 100 billion pounds in the previous year.

How will markets react?

Danske Bank sees upside risks to short-end dollar rates and downside risks to the euro if the Fed cuts rates.

Nomura has opened a short GBP trade, arguing there are greater downside tail risks for sterling because of the BoE’s quantitative tightening announcement next week.

Another cut by Norges Bank could spark profit-taking, while a EUR/NOK drop below 11.60 could be in the cards if the central bank leaves the Norwegian policy rate unchanged, UniCredit says.

For the yen, higher policy rates in Japan and lower rates in the U.S. favour a weaker dollar/yen, UniCredit says. They see dollar/yen back below 145 by 2025 and below 140 by the end of next year, from around 147 now.

In Canada, USDCAD will likely trade above C$1.38 if the BoC cuts interest rates, UniCredit says.

(Joice Alves)

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EARLIER ON LIVE MARKETS:

COMPOSITION OF UK SERVICES GROWTH HIDES VULNERABILITIES - CITI CLICK HERE

EUROPE BEFORE THE BELL: EUROPE FUTURES RISE ON BETS FOR FED CUTS CLICK HERE

MARKETS TO FED: WE'LL TAKE FIVE TO GO, PLEASE CLICK HERE

STOXX PAUSES AHEAD OF FITCH RATING DECISION ON FRANCE CLICK HERE

($1 = 0.7378 pounds)