Tightening Sync: ECB and BoJ Join Fed in Hiking as Policy Divergence Widens
The ECB lifted its deposit rate to 2.5% in September and the BoJ is expected to hike in December, while Brazil and Canada ease — a divergence that is resetting currency and bond markets.
The global monetary picture entering late October is one of widening divergence. The European Central Bank raised its deposit facility rate to 2.5% from 2.25% on September 16, and the Bank of Japan is widely expected to hike in December with Japanese inflation running above its 2% target.
Currency markets are repricing the differentials. The dollar index sits near 101.5, the yen has strengthened to about 156.3 per dollar on safe-haven and yield flows, and EUR/USD holds near 1.1220 as French fiscal uncertainty caps the euro. USD/JPY's decline this week reflects falling U.S. yields ahead of the Fed rather than a dovish turn.
Against the tightening camp, Brazil cut its Selic to 13.75% and Canada continues easing. The result is a policy landscape where the direction of travel is no longer uniform, and where interest-rate differentials — the engine of FX and sovereign bond moves — are being reset in real time.
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