Rate hikes are no guarantee of a stronger currency – Rabobank

Riksbank’s surprise decision to hike rates by a total of 100 bps lifted the SEK initially vs. the EUR but it failed to hold these gains. This provides a worrisome signal for the Norges Bank, which is expected to announce a rate hike tomorrow and an unsettling precedent for the Bank of Japan, Swiss National Bank and the Bank of England, all of which are also expected to make policy announcements tomorrow, economists at Rabobank report.

USD/JPY set to head higher toward 1.47 in the coming months

“The latest escalation in the rhetoric from President Putin suggests that the SEK is likely to be on the back foot in the near-term irrespective of yesterday’s 100 bps rate hike.”

“The market is expecting the Norges Bank to announce a 50 bps rate hike tomorrow. In the current environment, we would expect that a 50 bps move will have little short-term impact in supporting the NOK. Amid poor liquidity for the NOK, many investors are likely to remain side-lined.”

“The market is looking for a 75 bps rate hike tomorrow which will likely enhance the CHF’s safe haven credentials.”

“GBP has less chance of being lifted by an aggressive rate hike tomorrow. In view of the UK’s record current account deficit, we view the pound as highly vulnerable and see risk of GBP/USD dropping to 1.08 on a six-month view and for EUR/GBP to edge higher in this time frame.” 

“The BoJ is the standout outlier insofar as it is expected to maintain loose monetary policy tomorrow and until it sees more progress in domestic wage inflation. We see risk of USD/JPY heading to 1.47 in the coming months.”

See: 

• BoJ Preview: Forecasts from 10 major banks, null chances to suddenly change course

• Norges Bank Preview: Forecasts from five major banks, set for another 50 bps