Eyes on Fed, BOJ, Europe's bank stress test

Mon Jul 25, 2016 2:17am EDT
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By Balazs Koranyi

FRANKFURT (Reuters) - Central banks from Washington to Tokyo take center stage next week, although policymakers are likely to remain cautious as they wait for the dust to settle from Britain's shock vote to leave the EU.

As they wait for political reassurances and greater clarity over the likely impact of the move, central banks have mostly avoided action since Britain's June 23 referendum, calming jittery markets with verbal assurances but leaving the burden on governments to chart a path.

G20 finance ministers and central bankers said on Sunday they would work to support growth and better share the benefits of trade, after a two-day meeting in China dominated by the impact of Brexit and fears of rising protectionism.

The U.S. Federal Reserve is all but certain to keep interest rates on hold on Wednesday, acknowledging improved economic prospects but offering few hints about its next move, keen to avoid repeating its past mistake of stoking rate hike expectations.

The next move is still seen as an increase in rates. But even as concerns over Brexit ease the U.S. election is drawing closer, likely pushing back action towards the end of the year and possibly limiting the Fed to a single hike in 2016, a far cry from its early-year estimate for four moves.

"As the outlook up to mid-September will presumably not be clear enough by then, the next rate hike is more likely to happen in December in our opinion, followed by two further steps in the coming year," Commerzbank said in a note. "Consequently, we predict a somewhat stronger dollar and slightly higher yields in the medium term."

Analysts polled by Reuters also see the next move in the fourth quarter while futures imply a move closer to mid-2017.

Still, the U.S. economy remains on a solid footing with preliminary second-quarter GDP figures due on Friday expected to show the annual growth rate accelerating to a healthy 2.6 percent from 1.1 percent three months earlier.   Continued...

Traders work as Federal Reserve Chair Janet Yellen speaks on a television above the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York City, New York, U.S., June 15, 2016. REUTERS/Lucas Jackson