- Central banks to be in the spotlight in the coming months
- BOC expected to act before ECB to curb price pressures
Ever since economies started recovering from the Covid-19 pandemic shock, the talk of the town has been inflation and monetary policy. There is no doubt that central banks are going to be in the spotlight in the coming months, and how one bank performs compared to another is likely to be one of the main drivers of currency pairs in Q3.
That is why I’m focusing on EUR/CAD[1] from a central bank differencing perspective, given how one seems to be leading the pack with regards to rate decisions, whilst the other is still trailing behind.
I have to say I was surprised to see EUR[2]/CAD[3] keeping to a tight range throughout May and June given how the month of April was gearing up for a volatile second quarter. That said, the moves quickly reversed and the pair has been left trading pretty much where it ended the first quarter, which offers good opportunity going into Q3.
The Bank of Canada has been one of the first developed country banks to announce a tapering in its QE program as the bank adapts to improving domestic economic conditions. The interest rate projections remain unchanged up until mid-2022 but investors are likely expecting a policy shift before then, especially on the back of a continued rise in oil[4] prices.
Meanwhile, the European Central Bank is likely to remain cautious about changing monetary policy until more solid economic data shows improving conditions. After the debacle of 2011, they’ll want to avoid the mistake of rising rates too early in order to allow the Eurozone economy to recover before
