As election uncertainty fades, central banks to dominate currency moves
James Chen, CMT October 24, 2016 6:20 PM
For the currency markets, though, central bank outlooks remain front and center. On Monday morning, St. Louis Fed President and FOMC voting member, James Bullard, said that interest rates should be expected to stay “exceptionally low” for the foreseeable future. Despite this rather dovish pronouncement, market expectations of a December rate hike by the Fed remain high, well above 70%, and the US dollar has remained strong on the prospect of such a rate hike as well as on the likelihood of a non-Trump administration next year.
Other central banks have been even more market-moving as of late, including both the European Central Bank (ECB) and the Bank of Canada (BoC). Last week, the ECB kept its monetary policy and stimulus program unchanged, as widely expected, but also gave some dovish indications in leaving the door open for further stimulus measures possibly to be implemented at the next ECB meeting in December. At the same time, the central bank gave no indication of any tapering of its extensive quantitative easing program, which helped lead to a sharp plunge for EUR/USD last week. Likewise, the BoC ended up leaving monetary policy unchanged, but also downgraded its outlook for economic growth and indicated possible increases in stimulus measures on the horizon. This dovish talk, coupled with lower-than-expected economic data readings from Canada last week, prompted a further drop for the Canadian dollar against the strong US dollar, leading to an extended surge for USD/CAD. The fall of the Canadian dollar was exacerbated by weakening in crude oil prices on Monday, especially after reports surfaced that Iraq wishes to have no part in the recently discussed OPEC deal to cut crude oil production.
Slated for Tuesday, ECB President Mario Draghi will speak about monetary policy, potentially contributing to further volatility for the euro. Also on Tuesday, Bank of England Governor Mark Carney will testify on Brexit consequences, which could have a major effect on the already-beleaguered British pound. GBP/USD continues to stagnate just off its October “flash crash” lows as the specter of a “hard” Brexit, or UK exit from the European Union, looms ever closer.
In terms of currency impacts beyond this week, central banks will continue to be heavily dominant. Scheduled during a packed stretch next week are monetary policy decisions by the Reserve Bank of Australia, the Bank of Japan, the Bank of England, as well as the US Federal Reserve. Although the likelihood of the Fed announcing a rate hike in November is still very low only because the election follows just days later, any indications given about the likelihood of a December rate hike should have a clear impact on the US dollar as well as on equity and commodity markets.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.