Week Ahead – Crucial ECB and BoJ decisions on the menu

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A central bank extravaganza lies ahead. The show will kick off with the Bank of Canada meeting, where markets expect another rate increase but are split on the size. Meanwhile in Europe, a triple-barreled hike by the ECB is already locked in, putting the emphasis on the press conference. Finally, the Bank of Japan is unlikely to throw a life jacket to the sinking yen. With inflation running around 10%, the European Central Bank is widely expected to roll out another ‘turbo’ rate increase on Thursday. Markets have priced in a three-quarter-point boost to rates, after a swathe of ECB officials put their weight behind such a move. Since that’s already baked into the cake, the market reaction will come from President Lagarde’s commentary. In this sense, Lagarde and her lieutenants might be inclined to strike a hawkish tone and attempt to defend the devastated euro. Since the Eurozone imports most of its energy, a falling euro makes power prices even more expensive, amplifying inflationary forces and crippling economic growth. Further currency depreciation is the last thing Europe needs.