Posts belonging to Category FED



BoE rate decision ahead, could the pound gain?

The pound dropped to a new two month low against the US dollar ahead of the Federal Reserve’s interest rate decision.

The pound dropped to a new two month low against the US dollar ahead of the Federal Reserve’s interest rate decision.

 

But GBP might be safe from further losses.

What movement have we seen in the wise money markets?

It’s been a pretty hectic week for news, and yesterday we had the Fed rate decision, Dutch election and UK jobs data to contend with.

While the pound was able to hit 1.15 against the euro on Dutch election concerns, it has since fallen back to trading at 1.14.

The pound US dollar exchange rate, meanwhile, advanced to a high of 1.23 after the US interest rate decision before easing slightly to 1.22.

Sterlingís performance against the Australian dollar was a little less impressive, with the GBP/AUD exchange rate spiking to 1.61 before the Fed announcement but sliding to 1.59 in its wake. The pound remained trading in a weaker position against the Australian dollar despite Aussie jobs data falling short of the mark.

So, what happened?

The pound was able to rally yesterday as The Times published a report which detailed the need for the BoE to raise interest rates soon in order to counter the impact of rising inflation.

According to the economists referenced in the report, the BoE should increase borrowing costs by 25 basis points within the next couple of months.

The news that UK unemployment fell to its lowest levels in 41 years was also pound supportive, although disappointing wage data did limit GBP gains.

The GBP/EUR exchange rate also fell from its best levels as the far-right candidate in the Dutch election, Geert Wilders, came a distant second. As fears of rising populism have been holding the euro back in recent weeks, the news was enough to give the currency a boost.

Finally, over in the US the Federal Reserve acted as everyone expected and raised interest rates at its latest policy meeting. However, the pound actually strengthened against the US dollar on the news as the outcome had been predicted so far in advance and the Fed offered no real indication of when rates might be increased again.

What should you be looking out for?

Today’s big news is the BoE interest rate decision, due at lunchtime. The central bank isn’t likely to make any changes to policy at this point. However, if it mentions inflation and hints that borrowing costs will have to be reviewed if consumer price pressures keep growing, the pound could climb against currencies like the euro and US dollar this afternoon.

The Eurozone’s final consumer price index for February will also be of interest. If it confirms that inflation hit a four-year high, it could put pressure on the European Central Bank (ECB) to reconsider its own outlook on interest rates.

Bank of England leaves interest rates on hold

Wise Money is pleased with loans interest rates news from Bank of England.

Wise Money is pleased with loans interest rates news from Bank of England.

The Bank of England rate decision meeting didn’t provide any fireworks last week, as UK policymakers voted 9-0 in favour to keep interest rates unchanged. Despite signalling further rate cuts in the future, the decision didn’t come as a surprise considering the amount of stimulus they introduced last month.

The central bank is monitoring recent data closely, and they are encouraged to see that the stimulus package seems to be working, as recent data has been fairly positive and at times even better than market expectations.

It appears that investors are still not worried about the implication of the Brexit, at least until they find out what it really means. For this they will have to wait until article 50 is invoked early next year.

Busy money market data releases

It has been a very busy 24 hours in terms of economic releases. In the US, data came in softer, led in particular by a disappointing retail sales number. Headline sales were down -0.3% last month, the first decline in 5 months. Excluding autos and gas, spending fell -0.1%. Industrial production also declined in August, printing -0.4% against a market expectation of -0.2%.

It wasn’t all bad news though, as manufacturing activity encouragingly bounced back in the New York and Philadelphia regions, but it is not enough to convince investors that the FED will have enough reasons to lift interest rates next week.

Data in Europe will be quiet with final Q2 wages numbers due out in France. In the US, investors will closely look at August CPI report with market expectations of an increase of +0.1% month on month. Those numbers also match the views of our US economists. As always in the US, the University of Michigan consumer sentiment is scheduled for release.

Wise Money watches FED eyeing US data

The US FED is watching the to non manufacturing data to decide on interest rate hike.

The US FED is watching the to non manufacturing data to decide on interest rate hike.

Sterling has started the week on the front foot after last week’s positive manufacturing PMI print coupled with a better than expected services PMI sector. With Friday’s US non farm payroll data falling considerably short of expectations, the Pound rallied and GBPUSD currently finds itself trading just over the 1.33 mark.

The weak print from the US jobs data put pressure back on the Federal Reserve on the interest rate decision given that they were so heavily banking on employment numbers. At the Jackson Hole symposium last month, Janet Yellen and various Fed members were fairly hawkish on increasing interest rates but the fall in job growth has meant that analysts are now expecting the next hike in December at the earliest, if any.

However, later today, we are expecting data from the US including ISM non-manufacturing composite numbers which will be heavily watched by the markets as it could be the last resort to finalise any action from the Federal Reserve.

GDP revisions and retail PMI numbers expected from the Eurozone

From the Eurozone, second quarter GDP revisions and August’s retail PMI numbers are out today which could put further pressure on the euro. Last week’s manufacturing PMI data fell well short of expectations from the Eurozone and news flow and economic sentiment have rapidly deteriorated over the past fortnight.

Given such uncertainty, all eyes will turn to the ECB meeting later this week as markets are preparing themselves to see what stimulus measures the European Central Bank will further undertake.

In the midst of weak data from the US and the Eurozone, coupled with surprisingly positive data prints from the UK, Sterling seems to be enjoying a steady consolidation phase for the moment although any sharp moves up are fairly limited due to the uncertainty and forthcoming negotiations on how ‘Brexit’ will pan out.

A 10 year treasury gilt auction makes for the sole activity on the economic calendar for the UK today.

Wise Money waiting for key US data on Friday

Today we have US employment data which will give us a taster as we build up to the key non farm payroll data on Friday.

wisemoney US employment data which will give us a taster as we build up to the key non farm payroll data on Friday.

Feedback from the labour market is the highest consideration, as the FOMC judge whether it is appropriate to increase interest rates. On Friday the payroll data is expected to come in at a healthy 175k, and average earnings are likely to increase by 0.2%.

We could also see the unemployment rate fall slightly to 4.8% from 4.9%. If we see positive US data this week, it will build expectations for a September rate hike and lead to USD gains.

Eurozone inflation softer for August

In the Eurozone, CPI for August (y/y) has come in slightly softer than expected at 0.2% vs 0.3% expected. In addition, the unemployment rate for July has been confirmed at 10.1% which is in line with forecast. This morning the euro has been on the back foot and disappointing inflation data will not help this trend.

Pound finds tentative momentum

The Pound has managed to pick up this morning against the euro and the USD. Following a better run of UK data this week, the pound is finding some tentative momentum. Tomorrow we have UK Manufacturing PMI, and on Friday Construction PMI to give further feedback for the UK economy.

Federal Reserve likely to hold off interest rate rises as jobs falter

US non farm payroll data last week came as a rude shock to the markets at a paltry figure of 38,000 against an expected number of 164,000.

US non farm payroll data last week came as a rude shock to the markets at a paltry figure of 38,000 against an expected number of 164,000.

The US Dollar lost ground against most of its counterparts straight after the release and has now almost moved an interest rate hike in June off the table.

Analysts and hedge funds now expect the Federal Reserve to only raise rates once in 2016, against the initial mandate of the planned 3 or 4 rate hike dot curve for the year.

The EURUSD pair rallied up 2 cents though has pulled back a bit this morning as German Factory orders data have been released showing a decline to -0.2%.

Markets will now turn their attentions to Fed member Rosengren and Fed Chair Janet Yellen’s speeches later today and also keep a close eye on labour conditions data to try and determine if the non-farm payroll number was an outlier or if broader economic conditions are slowing.

Sterling is losing ground, pushed by the ‘leave’ campaign

The Pound has lost considerable ground against the board this morning as the ‘leave’ campaign continues to gather momentum in the UK’s Referendum polling.

YouGov telephone and online surveys have put the ‘Brexit’ campaign in the lead at 45% against the ‘remain’ side garnering 41% with 11% still undecided. Expect Sterling to be fairly volatile in the lead up to June 23 up to the date of the vote.

Meanwhile, investors will look towards market data comprising of BRC Retail Sales Index for interim direction though the main theme for the pound remains with the UK Referendum polls.

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.

Fed’s tapering timing crucial distraction from Syrian crisis

As most politicians were divided last week on the Syrian crisis at the G20, investors and economists remain divided on the timing of the Federal Reserve’s tapering programme.
Fed's tapering timing crucial distraction from Syrian crisis
With softer than expected data out from the US non-farm payroll figures, investors looking to flock to the US with their capital suffered a setback as the tapering programme can only be put into action with stronger employment numbers.

However, since the number was not weak at 169,000 new jobs in August against an expected number of 180 000, the Federal Reserve is still expected to announce that tapering could begin this month or early October, as Ben Bernanke will reveal early next week after the interest rate decision.

As we move into this week, US stock m arkets could be faced with considerable volatility depending on if the Congress decides to authorise a military strike against Syria. We start this morning with the Greenback slightly weaker than the previous weeks at 1.5640 GBPUSD and 1.3175 EUR USD.

Amidst expectations that the Fed will curb quantitative easing as early as this month or the next, gold has extended its losses and has fallen 17% this year.

From the UK, it was further revealed that manufacturing production has also risen for the second month in July by 0.2% adding to the already accumulated positive sentiment after a spate of good data from the economy.

With no economic data out from the UK today, expect Sterling to continue to remain strong as it has surged upwards against the greenback, post the softer job numbers to a high of 1.5650 early this morning, coupled with the evidence that suggests Britain’s economy is slowly starting to recover.

George Osborne is also expected to make a statement today to reiterate that the coalition’s plans of spending cuts and policy measures were the right step in getting Britain back on its feet towards recovery.

US Non Farm Payroll data released

The Non-Farm Payrolls is arguably the most important release of each month but this month it will be the most vital indicator for the future direction of the US Dollar.
US Non Farm Payroll data released
Ben Bernanke and the FED hinted for months that the improvement outlook in the US labour situation could trigger a scaling back of Quantitative Easing. September has become to be known as SepTaper as a tapering of the asset purchase programme could be a real possibility.

The US dollar, stocks and treasury yields indicates that many investors are still unsure there is enough reason for the Federal Reserve to taper asset purchases in September and the Non-Farm Payrolls today could provide vital clues.

According to most economists a 150,000 reading or better will be enough for the FED to scale down QE. According to the consensus, the market is expecting a reading of 180K and if past NFP releases are any guide, anything below consensus could spark a US Dollar selloff. There is a strong argument for a bullish number.

Service sector activity expanded at its fastest pace since January 2006 and interestingly, the employment component of the report rose to its highest level in 6 months. The ISM index rose from 56 to 58.6 in the August. Jobless claims dropped to 323k from 332k and continuing claims also declined by 43k to 2.95 million. The only disappointing data came from the manufacturing sector where job growth slowed slightly despite an increase in activity.

Over in Europe, the ECB kept interest rates unchanged. Draghi started yesterday’s press conference talking about the gradual signs of recovery, but he warned of downward risks. Draghi conceded, while answering one of the questions, that he doesn’t exclude the possibility of more rate cuts again if market interest rates move in an unsatisfactory way.

The ECB has been uncomfortable with the rise in the market interest rates and he has used forward guidance to reduce volatility to contain the market’s overreaction to the recovery. The ECB raised its 2013 GDP forecast to -0.4% from -0.6% but lowered next year’s forecast to 1.0% from 1.1%. Widespread improvements in U.K. data contrast sharply with mixed economic reports from the Eurozone.

The Bank of England has also left monetary policy unchanged yesterday. We will have to wait two weeks to see if the MPC members are comfortable with a much improved outlook for the UK economy.

The US Dollar continues to struggle as interest rates fears persist

There was further turmoil in the market late in trade yesterday as there were hints, again, that the Federal Reserve in America may start to taper or reduce the amount of Mortgage Backed Securities they purchase a month.
The US Dollar continues to struggle as interest rates fears persist
This sent the markets into a flurry of risk off activity with government bond yields increasing across Europe while major European indices lost over 1% on average.

This came after industrial output in the UK came in slightly better than expected across the board citing oil and gas production as a major factor.

Yesterday saw GB Pound/US Dollar rise over 1.56 for the second time in three days this was mainly dictated by the sharp rise in EUR/USD to 1.3315 to hit an almost 4 month high.

The GBP/EUR has continued to remain range bound and after earlier pressure it regained its composure to keep the trading range between 1.1690 – 1.1775.

After the recent flurry of positive data, before new governor Mark Carney takes the reins at the Bank of England, it is expected that today’s claimant count change will have fallen again, for the 7th month, in May in another positive sign that the UK’s job market is finding its feet as the nation continues to hire.

On the other side of the pond – as further hints about the Fed tapering the 85 billion worth of MBS purchased a month continuing to weigh on the greenback we have a quiet session ahead data-wise.

Without any strong positive news or data for the US it is likely the USD will continue to struggle today against GBP and EUR but mostly remain range bound between 1.5550 and 1.57 where key support and resistance levels.

As the legality of the Open Market Transactions continue into their second day in the German Constitutional Court, further negative news for the euro has struck with Greece being downgraded from a developed nation to emerging-market status as the local stock index has fallen 83% since 2007.

This morning’s data release saw inflation figures across the Eurozone’s 4 largest economies remain stagnant with France seeing a slight fall to 0.1% against expectations of 0.3%.

Wise money markets look to central banks for future direction

After the positive US Confidence figures to start last week US Dollar suffered as the week came to a close, so did the Dollar rally and strength that was sustained for the past 3 weeks.
Wise money markets look to central banks for future direction
With mixed messages coming from America, the USD suffered as investors continue to look for further hints at reductions in the Fed’s current cycle of monetary stimulus, as stock markets start to suffer.

This morning, April Chinese Manufacturing PMI was revised downwards, in further signs that momentum in the Republic is continuing to falter as domestic demand is flagging.

Also, this morning weaker then consensus retails sales data from Australia is continuing to weigh on the currency ahead of tomorrow’s interest rate decision.

In the UK there is a quiet week data wise to follow with Manufacturing PMI this morning expected to show slight growth at 50.2 and Services PMI on Wednesday showing growth at 53.

Thursday’s Bank of England interest rate decision is the last policy meeting and statement from outgoing governor Sir Mervyn King before Mark Carney take the reins in July.

This is unlikely to be much of an event this month with investors waiting until next month’s policy statement for any direction on further QE and economic health of the UK.

Over the channel after the ECB gave the signal for easier deficit-reduction in Italy all eyes will be on the policy statement and interest rate decision on Thursday to see what the central bank stance is towards other nations and also the concept of negative rates to stimulate lending to the real European economy.

Manufacturing PMI data today and Services on Wednesday are expected to come in line with releases late last month to show a brighter picture in the Eurozone but that the area is still struggling to find growth in the sectors.