Three Things to Watch in the Forex Market in the Next Week: GBP, JPY and USD in Focus

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- Bank of Japan could tweak on Tuesday

- Bank of England expected to hike on Thursday

- US Payrolls forecast to continue rising on Friday

The fusty deliberations of members of some of the oldest institutions in finance - central bankers - will dominate the economic calendar in the week ahead as both the Bank's of Japan and England meet to vote on monetary policy, whilst US payrolls rounds off the week with a potential firework on Friday.

1. BOJ meeting - Tuesday AM

The Bank of Japan (BOJ) meets on Tuesday morning to discuss and decide monetary policy and is widely expected to change or 'tweak' its ultra- loose monetary policy, after reports of rumours leaked from inside the Bank that it was contemplating such a move on Monday.

A change in policy would probably lead to a rise in the Yen as the current ultra-loose stance is weighing down on the currency - the BOJ has loosened as far as it can go so there is only way to go now, and that is tighter, which is likely to support it.

Although the 'official' consensus expectation is for no-change, analysts at CBA differ, seeing the BOJ as most likely to resolve the paradox of how to continue fluffing inflation without harming the banking system by removing its negative deposit rate of -0.1%.

Those at Capital Economics think the most likely outcome is for the BOJ to pave the way for a change later in the year by announcing it will be 'instructing its staff to investigate' how to make its policies more sustainable.  

If the BOJ dissapoints by not 'pressing the button' there is a risk USD/JPY could actually shoot higher as some are arguing that a tweak has now been fully priced in.

2. BOE Meeting - Thursday at 12.00

The Bank of England (BOE) is set to meet on Thursday to decide monetary policy when it is widely expected to raise base interest rates in the UK from 0.5% to 0.75%.

Such a move is likely to yield only limited upside for the Pound, however, as it is already widely telegraphed and lacks the 'element of surprise'.

The probability of a hike is now circa 80% and this week's positive data releases so far have helped not hindered expectations.

Positive data from the Consortium of British Industry (CBI) and an above 40k surprise in mortgage approvals both suggest the BOE may see fit to increase interest rates to cool the economy down.

The one spoiler as always is Brexit risks. EU chief negotiator Barnier's recent criticisms of key aspects of the Chequer's plan such as goods tracking and variable tariffing.

3. Non-Farm Payrolls - Friday 13.30

The US economy continues to burn strong, as confirmed by the Friday release of second-quarter GDP numbers.

The question is whether this same outperformance relative to the rest of the world - which is maintaining Dollar strength - can extend.

Some clues will come from the August edition of employment statistics.

Despite record high employment in the US, Non-Farm payrolls still has the power to roil markets and pump or burst the Dollar - although it is the average earnings component which is of most interest now.

Some are already calling a US Dollar top as the economy peaks too early on the artificial 'sugar high' of fiscal stimulus, but a rise in earnings is a sign of real stability and wealth the markets can't ignore and would keep interest rate expectations on the up.

Economists are forecasting earnings to rise by 0.3% in July from 0.2% in June  and to show a static 2.7% rise compared to July last year.

A surprise to the upside would boost the Dollar. Non-Farm Payrolls, meanwhile, is forecast to come out at 195k from 213k previously - anything around the 200k is very good considering the pool of available labour is shrinking all the time.

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