Tag Archives: FOMC

Central Banks

The US Dollar (USD) weakened overnight as the Federal Open Market Committee (FOMC) left its key interest rate unchanged at 0.50% and pared the outlook for more rate hikes this year. The market expectation is now that there will likely only be two 0.25% rate hikes this year, down from December’s prediction of four.

Whilst the Federal Reserve acknowledged that the US economy was expanding at a moderate pace, economic projections were downgraded with Real GDP forecast at 2.2% this year down from earlier predictions of 2.4%. The Federal Reserve acknowledged the growing risks of a weakening global economic outlook.

Today the market will focus on interest rate decisions from the Swiss National Bank (SNB) at 08:30, Norges Bank (Central Bank of Norway) at 09:00 and the Bank of England (BoE) at 12:00.

Opinions on what the SNB will do today are divided. There are some expectations that in response to the European Central Bank’s (ECB) easing the SNB might cut the range of its 3 month LIBOR rate to -0.50% and -1.50% from the current -0.25% and -1.25% range. However, as EUR/CHF is held well inside recent range and the ECB have ruled out more rate cuts, the pressure on the SNB to deliver lower rates today is limited so the SNB might opt to hold rates at current levels. Nonetheless, the SNB could have a dovish tone in the accompanying statement. EUR/CHF currently trades @ 1.0990, USD/CHF @ 0.9745 and GBP/CHF @ 1.3920.

The Norges Bank today is forecast to cut its key rate by 0.25% to 0.50% and the rate outlook is also likely to be revised down. EUR/NOK currently trades @ 9.46, USD/NOK @ 8.39 and GBP/NOK @ 11.99.

The Bank of England is expected to hold rates at 0.50% and its asset purchase facility at £375bn. It is unlikely the Bank of England will tighten its monetary policy in advance of the UK referendum on whether Britain should remain in the European Union due June 23rd. The prospect of a possible BREXIT means that the Pound is likely to remain under pressure and prevent any significant gains in the Pound. GBP/USD currently trades @ 1.4273, GBP/EUR @ 1.2660 (0.79p) and GBP/JPY @ 159.32.

USD Strength as Fed ends Quantitative Easing programme

The USD has appreciated following the Federal Reserve’s announcement that its programme of Quantitative Easing (QE) will end. Despite the global economic slowdown, the Federal Open Market Committee (FOMC) were generally more upbeat about the underlying strength of the US economy than in previous months but did state that interest rates would remain on hold at their current lows for a considerable time.

The Dollar has appreciated against the Pound, forcing GBP/USD back below 1.60, hitting a low of 1.5962 so far. Against the Euro and Swiss Franc the US Dollar has also advanced forcing EUR/USD down to 1.2556 and USD/CHF up to 0.9606.

A copy of the FOMC Statement can be found below:

http://federalreserve.gov/newsevents/press/monetary/20141029a.htm

October 29 2014

 

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee’s longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Loretta J. Mester; Charles I. Plosser; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.

 

 

US Dollar Strengthens on FOMC Minutes

The USD has appreciated overnight after minutes released by the Federal Open Market Committee (FOMC) showed that the US central bank was gradually taking a more hawkish stance as economic conditions (labour market and inflation) begin to normalise to levels last seen before the financial crisis.

The growing prospect of interest rate rises in the US coming sooner than expected have caused the USD to appreciate, forcing GBP/USD back below 1.66, hitting a low of 1.6565 so far and forcing the EUR down against the USD to 1.3242. Against the Yen the USD also appreciated sharply with USD/JPY hitting a high of 103.96.

Bungee Jumping Cable

Bungee Jumping Cable

Cable dropped off a cliff last week. Whilst it had climbed
in the week leading up to the New Year as the US edged ever closer to the fiscal cliff, it was actually the FOMC
minutes, released last week that hinted of a potential reduction in monetary
easing and interest rate rise, which pushed the pair over the edge. As the
bungee cord held late last week, today we will see whether the Pound can
actually catapult itself back up towards the 16 month highs that the pair had
experienced ‘pre-jump’.

With the Christmas period now over and the fiscal cliff
disaster averted, or at least slightly postponed, economic data releases should
now begin to take on more of a key role in influencing market movements this
week. With little data due out of the US, key figures from Europe and notably
China could add to market volatility this week. The Bank of England will make
an interest rate decision on Thursday and whilst rates are expected to remain
at their current levels, any increase would substantially strengthen the Pound
and could help Cable rebound after paring its gains last week following the
FOMC minutes. Furthermore Chinas dominance in the global economy means that any
positive data released from the country this week would also help strengthen
Cable as confidence around the world would be increased, stocks would
inevitably be buoyed and demand for safe havens such as the Greenback and Yen
would fall.

Please find
a summary of this week’s economic calendar below:

 

07.01.13

08:00 UK
Halifax House Prices

09:30 EU
Sentix Investor Confidence

10:00 EU
Producer Price Index

 

08.01.13

07:00 German
Trade Balance

10:00 EU
Consumer Confidence

10:00 EU
Retail Sales

10:00 EU
Unemployment Rate

11:00 German
Factory Orders

20:00 US
Consumer Credit Change

 

09.01.13

Chinese
Industrial Production

Chinese
Retail Sales

09:30 UK
Goods Trade Balance

10:00 EU GDP
Q4

11:00 German
Industrial Production

 

10.01.13

Chinese
Trade Balance

12:00 UK BoE
Interest Rate Decision

12:00 UK BoE
Asset Purchase Facility

13:30 ECB
Monetary Policy Statement

 

11.01.13

01:30
Chinese Consumer Price Index

09:30 UK
Manufacturing Production

09:30 UK
Industrial Production

13:30 US
Trade Balance

13:30 US
Import Price

15:00 UK
NIESR GDP Estimate

19:00 US
Monthly Budget Statement

 

Mark Webster