Articles from March 2016

FED keeps interests rates flat

The Federal Reserve last week sparked US dollar weakness as they kept interest rates on hold.

The Federal Reserve last week sparked US dollar weakness as they kept interest rates on hold. The forecast outlined by the Fed at the beginning of the year was for four gradual rate rises over the course of the year, but now markets are anticipating just one further hike, if any at all during 2016. This is owing to the uncertainty in global markets as well as flat lining inflation and global growth concerns.

Despite this, commodity prices have rebounded slightly. This has helped stock markets recover from their slump earlier in the year and triggered a strong rally in risk assets.

Markets will be keenly watching this week’s data from the US for further direction as we move into the Easter weekend. Core Durable Goods and unemployment claims are released on Thursday.

While the Federal Reserve have chosen to remain dovish on forthcoming monetary policy, the European Central Bank have expanded their quantitative easing programme and cut deposit rates.

The outlook for growth and inflation in the EU has continued to slow further, but this has helped reverse the negative sentiment; with the Central Bank standing firm in its efforts to boost inflation.

Sterling rallies against the dollar

Sterling has rallied almost 4 cents against the US dollar on the back of dovish comments made by the Fed last week on monetary policy as well as a watchful evaluation of global growth conditions.

As monetary policy gets slightly less divergent, fears regarding a Brexit scenario and a soft inflation outlook has capped any further gains for the pound.

The CBI Industrial Trends Orders print is the only set of data out on the economic calendar to provide further direction.

Central Banks keep interest rates on hold as global risks mount

US stock markets have rallied after a pickup in commodity prices as the US Dollar lost ground after the statement by the Federal Reserve.

US stock markets have rallied after a pickup in commodity prices as the US Dollar lost ground after the statement by the Federal Reserve. The Fed has left its benchmark interest rate unchanged even though the US economy is growing steadily but the Central Bank is being very cautious due to the threat and potential risks of global economic and financial turmoil.

GDP forecasts were also lowered by the Fed and markets are now expecting just 1 more rate hike later in 2016, much lower than the 4 hikes forecast earlier by the Fed.

With the Central Bank being so dovish, the Greenback lost ground against most of its counterparts though continues to find strength against the Japanese Yen.

Speeches by FOMC members Dudley, Rosengren and Bullard later today should provide further direction for the dollar, coupled with consumer sentiment data out from Michigan.

The euro has made a slight comeback after falling considerably last week after Mario Draghi’s speech boosting further quantitative easing for the Eurozone. However, a dovish Fed strengthened the euro.

Sterling strengthens across the board

Sterling has also strengthened across the board despite the Bank of England holding interest rates which was widely anticipated.

Most of the gains made were based on forecasts of slight gradual rises in inflation and growth and a dovish Federal Reserve.

Also, the Budget for 2016 was released on Wednesday and the market found a bit of cheer as GBPUSD touched its highest level for a month.

With no economic data out from the UK, markets will look towards events elsewhere for short term direction.

Sterling remains flat as Osborne delivered Budget 2016

It was a big day for the UK yesterday as George Osborne released the Government’s budget for 2016.

It was a big day for the UK yesterday as George Osborne released the Government's budget for 2016.In a coup for small businesses, middle class workers, savers and energy companies, Mr Osborne’s tax cuts have been widely criticised as an attempt to woo UK voters in his last statement ahead of the EU referendum in June.

The UK economy’s growth and productivity forecasts were downgraded disguising a £56 billion ‘’black hole’’ in the Government’s finances as Osbourne favoured the more crowd pleasing approach.

Osborne warned that amidst a backdrop of slowing global growth and turbulence in financial markets, a possible Brexit would only hurt UK business and consumer confidence further.

Despite the budget receiving much attention here in the UK, foreign exchange markets refused to take notice and Sterling remained steady against all major currencies over the course of the day.

Yellen ends US interest rate rise speculation

Last night the Federal Reserve’s FOMC met in the US. Janet Yellen’s resulting speech stated that interest rates would remain unchanged for the time being and was much more dovish in tone than expected.

With all the clues suggesting that, the Fed won’t be discussing interest rates again now until June, the US dollar came under pressure. However, despite dollar weakness and the worrying state of the global economy, Yellen suggested that US economic activity had been expanding at a moderate pace.

Today markets will be spending the majority of the day deciphering Janet Yellen’s press conference from last night.

Later in the trading session, we will receive EU CPI data and an interest rate decision from the Bank of England. From the US, the Philadelphia Fed manufacturing survey and weekly Jobless Claims will be of interest.

Volatility day expected for UK Budget and FOMC meeting

Today is UK Budget day for George Osborne

Today is UK Budget day for George OsborneTonight brings us the US Federal Reserve (FOMC) interest rate decision. The FOMC are not expected to change interest rates tonight, but the meeting will give clues about the timing of the next move.

The most important aspect of tonight’s meeting will be the ‘dots’ – this closely watched graph shows the central bank’s forecast interest rates.

It’s anticipated that the rate run will contain another two or three hikes this year and four next year. The FOMC could present June as an opportunity to hike, and if so, this is likely to feed into USD strength. Overall, markets expect that the meeting’s sentiment will lean to the hawkish, with a firm focus upon the performance of global markets and the domestic labour market.

A day full of economic data

Before we get to the FOMC meeting we have plenty of economic data to digest. US CPI inflation data is projected to increase by 0.2% in February, and remain unchanged at 2.2% for the year. We also have US industrial and manufacturing production data, which is expected to weaken.

From the UK we have key unemployment data today. The unemployment rate is forecast to remain unchanged at 5.1%. Market focus will be on average earnings data; although numbers were flat in January there is optimism that wages should be now moving higher.

Finally, we get to hear Chancellor George Osborne present the Budget today. The Pound has softened in the run up to the announcement, over concerns for the potential aggressive fiscal tightening that could be delivered.

ECB lowers negative interest rates

It was a tale of two halves for the European Central Bank (ECB) meeting yesterday as interest rates were dropped.

It was a tale of two halves for the European Central Bank (ECB) meeting yesterday as interest rates were dropped.Initially they delivered a comprehensive package of easing which included a cut to the main refinancing rate from 0.05% to 0% and a deposit rate cut to -0.4% from -0.3%. QE was also increased and expanded and they introduced a new year 4 year liquidity package in the form of TLTROs.

At this point the market responded positively and the euro lost ground sharply against the US Dollar and the Pound. However, the rug was pulled by confirmation in the Q&A session from Mario Draghi that he does not expect to see any further rate cuts.

This line in the sand on no further interest rates spun the euro from weakness to strength in a very sharp about turn and led to euro gains on the day amidst huge volatility.

It seems the ECB are trying to focus their attention on the credit space through bank lending to support the recovery and to curb disinflation. The decision is effectively moving away from targeting euro weakness as a way to turn the tide of falling inflation.

The ECB has also now bought time before any additional easing would be considered. In summary they have sent the message out that they are done for now. This conclusion has been taken as a disappointment by the market which had expected the easing bias to continue with forward guidance and some are questioning if this is the ECB’s last stand and they are now out of bullets.

German inflation numbers come in weaker than expected

Today will be largely spent assessing yesterdays’ ECB decision and fallout. Elsewhere in the EU, this morning we have had German inflation numbers which have come in weaker than expected at -0.5%. Later on it’s the turn of UK trade balance which is expected to be slightly up from last month’s figure.

Aside from this there is little data out, however over the weekend we have some key Chinese data to look forward to.

Euro tested after Italian referendum

The euro bounced strongly on Monday, after its initial knee-jerk reaction to Italyís referendum.

The euro bounced strongly on Monday, after its initial knee-jerk reaction to Italyís referendum.

Yesterdayís price action appears to have put in a near-term base.

Cable however is still sitting higher, as it trades off the back of headlines coming from the High Court appeal over Brexit. That said, itís expected to be short-lived, with an interest rate hike on the cards from the Fed later in the month.

UK economy on course for solid finish

A recent survey conducted by Markit has shown that the UK economy is on course for a solid finish to the year, after activity in the services sector picked up, and consumer spending continued to rise last month.

Considering the UKís dominant services sector enjoyed its fastest growth since January, and the pounds latest surge, fears of a long lasting downside following Brexit may not be as bad as initially feared. This is also in line with the fact that the UK economy was on course to grow 0.5% in the final quarter, which coincidently matches GDP growth, going against what most economists predicted post-Brexit.

Data to come

The EU sees the Q3 GDP and the German Factory Orders for October, while the High Court Brexit appeal will continue in the UK. From the US we get Trade Balance and Factory Orders, and the API Weekly Crude Oil Stock Inventory will also be released, which will likely add to the current volatility in the oil price. Aside from this, all eyes will be on the ECB when they meet on Thursday.