Federal Reserve Chairwoman Janet Yellen on Friday said the case for another interest-rate hike is strengthening, sending a strong signal the U.S. central bank is preparing to increase rates as soon as next month.
EconomyVN - USD dropped against most of the major currencies during yesterday's trading session as investors reassess the ability to raise interest rates by FED this year in the context of no new additional economic indicators might indicate clearly about the US economy's health.
The greenback strengthened as reported non-farm jobs in July announced on Friday (05th of August), much better than expected, increasing speculation that Federal Reserve will raise interest rates later this year . However, dollar's rally has stalled in the absence of catalysts in the context of the trading volume expected this week at a low level because many investors entered the summer vacation.
Many analysts predict FED will raise interest rates in December this year and believe that the Fed will not act before the President election in November. The speech of Federal Reserve Chairman Janet Yellen at the annual conference of the finance ministers and central bank governors in Jackson Hole, Wyoming on 26th of August are closely monitored by investors for more clues about when interest rates are raised.
The dollar continues to have 3 consecutive declines with a quite sharp fall on Wednesday supported the gold prices rallied in Asian, European and early US session. Nevertheless, then taking profit has braked the rise in gold prices and closed with modest gains. At End of yesterday session, gold prices rose 6 dollars to the world $ 1.346 / ounce.
The market today continues absence of information important impact. Economic data released today is the number of last week applications for US unemployment with the forecast of rising slightly from 269,000 to 272,000. As volume this week is forecast at a low level, data is launched today can impact on the evolution of the main currency pairs in the market.
Ending the regular policy meeting on 04th of August, Bank of England (BoE) announced lower interest rates from 0.5% to 0.25%. This decision was adopted by all 9 members of Monetary Policy Committee (MPC) and this is the first time this agency changed interest rates since March 2009. Along with lower interest rates, BoE announced a program of pumping large-scale money into the economy.
Also during this meeting, BoE cut the forecast for UK economic growth strongly since beginning this prediction in 1993. Accordingly, BoE cut its forecast for UK economic growth in 2017 to 0.8 % from 2.3% given in May. The forecast growth this year is unchanged at 2% by GDP of the first half of the year increased sharply over the previous forecast. BOE also forecasts that the unemployment rate would rise to 5.4% in the following year and 5.6% in 2018.
The interest rates cut of BoE has been predicted by the analyst, however, restarting the asset purchase program makes the market unexpected. The pound has depreciated 1.5% against the dollar after BoE's statement. At a press conference later, Governor Mark Carney said MPC launched these measures because the economic outlook has changed dramatically.
Governor Mark Carney also said the majority of MPC members supported adding a further cut of interest rates as well as the further implementation of other measures to stimulate if the data shows that the economy deteriorated. However, many analysts believe that BoE is likely to wait for several months to assess the impact of current measures for the economy before continuing other actions, and the market does not expect the next strong decline of GBP.
The attention of the market today focuses on employment report announced by US Labor Department. Analysts forecast, in July, US economy added only 180,000 new jobs after creating an additional 287,000 jobs in June and the unemployment rate fell from 4.9% to 4.8%. US dollar will be supported if job growth will be at around 200,000 and the unemployment rate and wage growth will be positive as expected. In the case of disappointing jobs data, the dollar will be under pressure big discount.
GBP/USD SELL: 1.3180; TARGET: 1.3020; STOP-LOSS: 1.3240
EconomyVN - on 4th of August, Bank of England (BoE) announced to cut interest rates from 0.5% to 0.25% - it is the first time in 7 years.
Interest rates cut is one of the measures of England to deal with the aftermath of Brexit. So specifically what are package solutions?
Besides cutting interest rates by 25 points%, Bank of England has announced a series of programs to add liquidity support for banks as lending 100 billion pounds, spending 60 billion pounds to buy government bonds and 10 billion pounds to buy corporate bonds.
In a press conference immediately after this action, Governor Mark Carney has made the clearer explanations of the BoE decision. Mr. Carney started with placebo sentence that the UK is fully capable of dealing with the economic changes following the aftermath of Brexit while confirming cutting interest rates and pumping money of Bank of England is the move actively ahead of the situation. But with a series of economic data in recent days as production activities, services and construction are simultaneously reporting the results down, while services - the important position of British economy plummeted, everyone understands that economy is under pressure more clearly from Brexit.
Does Bank of England cut interest rates to negative?
The period of the difficult economy certainly just begins, BoE can do something when their intervention is also close to limit. The members of UK Monetary Policy Committee are unified that they will not bring interest rates to lower 0.
In today's speech, the Governor of the Bank of England is not confident about the prospects of the economy, he said growth will fall very sharply, unemployment will increase and Bank of England will continue to intervene, most likely early next year.
Chain of information shows that the more likely Bank of England will take interest rates to 0.1% in the beginning of next year and just cut to that level, with pumping money, and quantitative easing program. UK Treasury in the short term will also announce fiscal adjustments, the more likely the tax reduction to stimulate consumption and lending activities. The solutions to steer the economy in general have been put on the table, but even so, market predicts UK economic growth in 2017 will be still down 0.8% and the possibility of a recession in the next 18 months is still high as 50%.
New York Fed governor - William Dudley - said that the market should not eliminate the possibility that US Federal Reserve System (Fed) will raise interest rates this year.
In a press conference on 1sth August in Bali between Fed officials and financial managers, Mr. Dudley said that the market is too complacent as forecasting the Fed will raise interest rates by 25 basis points from today until the end of 2017.
Thanks to improved consumption, Mr. Dudley expects the US economy will grow at a rate of 2% in the next 18 months.
If the coming information reinforces economic outlook, US monetary policy will need faster moves than the price in the future to neutralize the market because the labor market tends to tighten and the inflation increases.
In addition, Mr. Dudley also noted that the market has underestimated the ability that no.1 economy grows faster than forecast.
The risks affecting growth such as the UK to leave the European Union (EU) and other international moves will soon ease. If the events, which have a negative impact, happen, Mr. Dudley said the US economy will require a faster growth rate than people expect.
Mr. Dudley supposed that this time is too early to exclude the possibility of tightening monetary policy further in 2016. It depends on the data, and no one can predict precisely.
In last week's policy meeting, the Federal Open Market Committee (FOMC) - who are directly responsible for the monetary policy of the Fed - have decided to keep interest rates unchanged at 0.25 to 0, 5% although they admitted the job market has been strengthened and other indicators also showed growth.
The last time, when Fed raised interest rates in December last year, is also the first time as they raised interest rates from nearly 0% for almost a decade.
On the other hand, in their statement, FOMC said inflation has not shown signs of growth yet and as the forecast, this situation will last. Chairman Janet Yellen and her colleagues noted that inflation will only increase as the energy prices retreat and the job market continues to grow.
Mr. Dudley said that the medium-term risks to the US economy tend to decrease in near future.
For that reason, he suggested that the market may believe that the Fed will likely stick plans to raise interest rates two times as their plan launched earlier.
According to the governor, Fed is adopting a risk management approach and they were prudent with the risks of tightening fiscal policy. Although the market supposes that Fed is cautious too early, but they decided to choose this method to not have to deal with the later discovered risks.
However, the Fed was slow to react to inflation risks. Inflation policies may be adjusted by increasing short-term interest rates quickly.
By ending the regular meeting lasted two days 26-27th of July, almost all Fed officials agreed to postpone raising interest rates to keep track of economic indicators before deciding on policy adjustments in the next session. Up to 9/10 of votes cast in favor of unchanged interest rates at 0.25%-0.5%.
Some bright views in the FOMC statement issued after the meeting, are that the labor market has returned to strong growth, consumer increases sharply. The agency claims that short-term risks threatening the US economic outlook have disappeared. In the opposite direction, a statement said inflation is still low and this situation may continue for the short term. However, inflation will rise again when the energy prices recover and the labor market continues to improve.
Dollar Index, measuring the strength of Dollar against a basket of currencies rose 0.4% immediately after the Fed announced the results of the meeting. However, the greenback was bearish back against most of the major currencies as investors disappointed with the absence of specific signals on raising interest rates, especially plan of adjusting interest rates at the next meeting in September.
In spite of not raising interest rates in this meeting, however, Fed's assessment on the US economic situation has increased expectations of interest rate hikes in the coming months. Wall Street investors bet 20.9% chance of rate hike in September and 49.5% in December. US dollar is expected to continue to show strength in the future.
The yen yesterday witnessed volatility with the soared USD / JPY after Reuters reported Japanese government is expected to issue 50-year bonds to support big fiscal stimulus programs. However, the yen then rebounded when the Japanese Finance Ministry denies rumors related to 50-year bonds.
After the Fed meeting, the market's attention focused on the results of the meeting of the Central Bank of Japan (BOJ) to be announced tomorrow. This session will be closely monitored in the context of that the Japanese government determines to implement a huge stimulus package to revive the economy of the country. Analysts predict BOJ will ease monetary policy further and most likely the agency will increase the size of the bond purchase program from 80 trillion yen per year to 100 trillion yen while reducing interest rates on deposits from minus 0.1% to minus 0.3%.
Contrary to forecasts of economic analysts and investors, Bank of England (BOE) on 14th of July ended policy meeting by deciding to keep the interest rate at record low 0.5% maintained for more than 7 years, and have not made any changes to the program of 375 billion pound quantitative easing (QE) made from November, 2012.
BOE's decision surprised a lot because before the meeting, participants of market forecasted with probability 70%, BoE will cut rates from 0.5% to 0.25% to support economy deal with risk of depression after the voters of this country voted to leave EU. Even BoE Governor Mark Carney has issued clear signals about the possibility of lower interest rates in the context of deteriorating economic outlook.
In the minutes of the meetings published immediately afterwards, BOE said the agency did not change monetary policy until there is a more complete assessment of impact of Brexit for UK economy. Besides, most members of Monetary Policy Committee (MPC) of BOE have endorsed the easing monetary policy in August, if the economic outlook does not improve.
Shortly after BOE announced this decision, GBP / USD soared nearly 2% to 1.3470, the highest level of 3 weeks before falling partially. Although the recovery of British pound is likely to continue, but this currency is expected to drop again in the near future.
Japanese yen continued strong downtrend since the beginning of the week and in this morning USD / JPY exceeded 106 level, 3-week high as the market continues to expect Bank of Japan (BOJ) will strengthen the easing monetary policy by expanding bond purchase program at a meeting of the agency on July 27-28th. After the landslide victory of the ruling coalition of Prime Minister Shinzo Abe at the Japanese Senate elections, observers are expecting a fiscal stimulus package will be announced in future.
GBP: BUY 1.335 TARGET: 1.3520 STOP-LOSS: 1.3260
Investing.com -- The U.S. Dollar Index pared sharp losses, remaining near three-month highs, after the release of a closely-watched Federal Reserve survey on Wednesday and ahead of a highly-anticipated interest rate decision from the Bank of England.
The index, which measures the strength of the greenback versus a basket of six major currencies, hit an intraday low of 96.09 before, rebounding to 96.36 (down 0.19 or 0.20%) at the close of U.S. afternoon trading. At session-highs of 96.60, the index was only down fractionally from its three-month high in late-June in the wake of the post-Brexit fallout. Although the dollar has fallen sharply from its peak in December, it has rallied more than 4% from its level in early-May when it slumped to 10-month lows.
When the Federal Reserve released the latest version of its Beige Book on Wednesday afternoon, the survey showed evidence of modest economic growth in most regions of the U.S. for the monthly period through July 1. At the same time, respondents from the 12 Fed district reported indications of modest employment growth, modest to moderate wage pressures and generally positive levels of consumer spending, despite some signs of softening conditions. While three regions, Dallas, Chicago and Boston said last month's U.K. referendum had an effect on business activity in their areas, none of the other districts made note of Britain's decision to leave the European Union.
Over the last few weeks, members of the Federal Open Market Committee (FOMC) appear split on the timing of the Fed's next interest rate hike. Kansas City Fed president Esther George and Cleveland president Loretta Mester appear to favor gradual rate hikes over the medium term, while St. Louis Fed president James Bullard and Minnesota Fed president Neel Kashkari seem to advocate a patient approach to tightening monetary policy. Dallas Fed president Rob Kaplan, meanwhile, said the FOMC can remain accommodative as long as its dual mandate in terms of inflation and employment objectives are not met. Also, Philadelphia Fed president Patrick Harker said on Wednesday that the FOMC could still raise rates up to two times this year.
In the U.K., Home Secretary Theresa May was confirmed as Britain's second-ever female prime minister and 54th in history after David Cameron officially resigned from the position on Wednesday. While it is unclear if May's appointment will boost the U.K.'s chances of gaining access to the European Union's single market, the move helped ease investor sentiments on the strength of the British economy for the time being.
Also on Wednesday, May reshuffled Cameron's cabinet appointing former London mayor Boris Johnson as foreign secretary, while adding David Davis, as Secretary of State for Exiting the European Union. Johnson replaces Philip Hammond, who was appointed as chancellor of the exchequer, following the dismissal of George Osborne. The moves come ahead of Thursday's closely-watched Bank of England meeting, the first since the Brexit decision. While BOE governor Mark Carney has sent strong indications that the bank could lower rates and unveil a fresh round of easing at some point this summer, Carney has hinted that the BOE could wait until August before instituting the measures.
GBP/USD hit near two-week highs of 1.337 on Wednesday, before falling back to 1.3133 at the close of U.S. afternoon trading.
Elsewhere, investors digested conflicting reports that Japan could adopt a helicopter monetary policy following former Federal Reserve chair Ben Bernanke's meeting with Abe on Tuesday in Tokyo. The concept of helicopter money involves large scale printing of money by a central bank that is distributed to the public as a way for helping stimulate the economy. Abe unveiled a sweeping reform after his Liberal Democratic Party (LDP) triumphed in upper-house elections over the weekend, which includes a ¥10 trillion ($98 billion) stimulus plan.
In addition, the Japanese government lowered its annual March, 2017 consumer inflation forecast from 1.2 to 0.4% on Wednesday. As a result, the dollar pared earlier losses against the Yen, trading at 104.32 at the end of the U.S. afternoon session, down 0.17% on the day. The pair slipped below 104.00 at session-lows, one day after hitting a two-week high at 104.98.