Crispus Nyaga

Crispus Nyaga is a Nairobi-based trader and analyst. He started trading more than 7 years ago as a student. He has published in several reputable websites like The Street, Benzinga, and Seeking Alpha. He focuses mostly on G20 currencies, commodities like Crude oil and Gold, and European and American large-cap companies.

One of the most important roles of central banks is to ensure the stability of the financial sector. They do this by working closely with banks to ensure that they are well-funded. Another important role is to ensure that consumers are protected from high inflation, deflation, and stagflation. They do all this by using several tools which include interest rate hikes.

When the economy is doing very well, in theory, it should lead to higher inflation rate as people rush to buy. To prevent it from overheating, the Fed intervenes and raises interest rates. When the economy is doing badly, the central bank usually intervene and lowers interest rates. It does this with the goal of stimulating the economy.

This is what happened ten years ago when the world witnessed the biggest financial crisis in almost a century. In response, global central banks intervened and lowered interest rates. This was with the aim of stimulating growth by reducing interest and mortgage rates.

Today, there is a divergence between the Federal Reserve and the other major central banks. While the Fed is raising interest rates, the other banks have sounded increasingly cautious about raising rates. In fact, in the past two years, the Fed has increased rates eight times. At the same time, only the Bank of England has raised rates. The ECB has continued to maintain low interest rates while the BOJ has said that it will not be interested in raising rates. This is despite the fact that the global economies are doing significantly better than they were after the crisis.

Recent economic data has shown that inflation is a bit better than it was. As you recall, inflation refers to the overall upward movement in price of products. While increased inflation is bad, policy makers love it when it is maintained. This is because a decrease in consumer prices tends to affect the performance of companies. As their performance is affected, they tend to do more layoffs.

Today, traders will receive the consumer prices from the UK. They expect the data to show that consumer prices declined slightly to 2.6% in September. This is after an increase of 2.7% in August. If the data meets estimates, it will be an indicator that the prices have been well-contained this year. This is after the data showed an increase of 3.1% in January. It will also be a good thing after the UK data showed that wages were growing faster than expected. The unemployment rate remained at 4.0%, which is a good thing.

Today, the European Union too will release the CPI numbers. Traders expect the numbers to show that the CPI rose at an annualized rate of 2.1%. This will be unchanged from the growth of 2.1% in August. The core CPI is expected to remain unchanged at 0.9%. As shown below, the rate of inflation has continued to improve this year having gained from 1.3% to the current 2.1%.

After the EU CPI, traders will receive the CPI numbers from Canada on Friday. Traders expect the data to show that CPI for September rose by an annualized rate of 1.8%. This will be higher than the previous month’s 1.7%. Further improvements in the CPI will be a good indicator that the BOC may hike rates on Wednesday next week. Like in the EU, Canada’s CPI has been on an upward trajectory as shown below.

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