Interest rate adjustment risk

Starting a new thread on fundamentals is a new departure for me so please excuse any false conclusions or assumptions on my part but please go right ahead and correct my thinking if you have a clearer picture.

Currently it seems central banks are pre-occupied with the inflation risk. This has led most of them to instigate comparatively large interest rate increases in recent months, with perhaps the Fed and Bank of England leading the way.

As ever, the ECB is expected to act by doing as little as possible as late as possible, while the BoJ meantime isn’t doing anything. The EUR and JPY are as weak as ever.

But can we depend on these assumptions? The ECB announces a new interest rate this afternoon. Although a large rate increase is forecast, is it really likely to have any great impact on EUR/USD? Seems hard to believe so I’m holding my EUR/USD short.

But I have more exposure to the USD and JPY. The next BoJ interest rate announcement will be on 22/09. If the BoJ suddenly decide to get active, this could have an impact on USD/JPY, in fact all JPY pairs. I’m thinking its a risk not worth running so plan to be out of most of my positions even before the Fed news on the 21st.

Comments welcome.

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