Very exciting week ahead

The American decision will be made on Wednesday, June 13 Fed about interest rates in the United States (US). The meeting will be held on Thursday, June 14 European central bankers and their Japanese counterparts will conclude the monetary relay on Friday, June 15.

Boost official interest rates?
Regarding the Fed, the market expects the bank to raise official interest rates by 25 basis points. In addition, it is expected to shed more light on the question of how many interest rate increases are still planned for the rest of the year. The latter is what the market is looking forward to. Will there be 2 more interest rate increases (after next week's), or only 1?

We have repeatedly wrote that the market expects the Fed to raise rates 4 times this year, and concluded that this is too optimistic. These expectations have indeed been lowered recently. On Wednesday, June 13, we will hopefully hear more about the course the bank has set for the rest of 2018.

Present growth estimates
The European Central Bank (ECB) will update the estimates on the inflation and publish economic growth. Any deviation could prompt the market to adjust expectations about the phasing out of government bond purchases. The market may also change its expectations about how quickly the ECB will raise official interest rates.

With the high inflation in Germany (weakening growth in the country), the increased oil price and the weaker euro (the latter 2 push up the inflation level in the euro zone), these expectations may indeed be adjusted. In addition, a lot will also depend on the words of ECB boss Mario Draghi during the press conference afterwards. As is often the case, movements may mainly occur in the euro-dollar exchange rate and the interest rates of the euro countries.

The euro-dollar exchange rate
De euro-dollar rate has first fallen considerably in recent weeks, but then recovered again. The main reason for that decline was the flight to safety due to the unrest in the emerging markets. However, the unrest in Italy (the fear that Italy wanted to leave the euro), stronger economic growth in the US and signs that economic growth in the euro zone is slowing down somewhat also played a major role.

The fear that Italy is saying goodbye to the euro, has now significantly reduced. If the Fed hints that the bank will raise interest rates less often than the market expects, the euro-dollar exchange rate could easily climb back towards 1,20 or higher in the near future.

US-North Korea meeting
What could reinforce the above is if the meeting between the American and North Korean presidents on Tuesday, June 12, goes well. That would mean that geopolitical tensions could decrease, something that is usually bad news for the value of the dollar.

However, before the US president Donald Trump flies to Singapore for the meeting, he will see counterparts from the 6 largest industrial countries at the annual G-7 summit. There is a good chance that the summit will lead to more disagreement. This is due to the recently introduced American import duties on steel and aluminum from the European Union and Canada. If the US becomes isolated, that could also be bad news for the dollar.

Low German interest rates
Interest rates in Germany have fallen sharply in recent weeks, as a result of the flight to safety. Now that fears about Italy's exit are subsiding, a recovery from that decline would not be illogical. This is certainly the case with the top heads of state and government in mind eurozone. If concrete decisions are taken there, there is a good chance that the market will interpret this as the fact that the euro countries guarantee each other. That would raise German interest rates and push down interest rates in countries such as Italy.

On closer inspection, the statement that next week will be special has been underestimated. From Saturday, June 9 (when the G-7 leaders meet) to Friday, June 15, every day can be special. And then the euro summit still has to take place at the end of June.