Pound exchange rates have staged another recovery on the back of pre-Referendum GDP news, while the US Dollar has predictably been destabilised by an upcoming, high-importance speech from Federal Reserve Chair Janet Yellen.
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Euro traded higher against the US dollar today despite weaker business confidence in Germany. Over the past few months we’ve seen how skeptical investors have been about the guidance from central banks. Most Fed officials believe that rates could rise this year but Fed fund futures show that investors aren’t convinced.
The Fed had at the end of 2015 raised rates for the first time in almost decade, ending the policies created to respond immediately to the Great Recession. “Given the Fed’s history, it’s hard to see them hiking a few times this year”.
“Indian markets are expected to see a positive opening (On Monday) as the chances of a Fed Rate hike in September is off the table”.
Now Yellen knows it is critically important that investors believe the Fed will be able to respond and provide the necessary monetary stimulus to help the USA economy to recover from its next downturn.
The fed officials also noted that the recent job gains in the labor market and uptrend in the economic outlook is enough reason to raise interest rates. Last week San Francisco Fed President John Williams talked about abandoning the inflation target, keeping rates low for longer and possibly even considering negative rates.
Banking risks in peripheral economies, especially Italy, remained “large”, Allen argued, adding that those risks would rise if economic growth in the currency-bloc slowed. Second estimate of US second quarter GDP and a consumer sentiment reading due today may have limited impact on the markets, given the market preoccupation with the Fed rates, which shifts the spotlight exclusively on the Fed Chair’s speech.
Yellen is scheduled to speak on the topic “Designing Resilient Monetary Policy Frameworks for the Future” at the Kansas City Fed’s monetary policy symposium in Jackson Hole, Wyoming at 10 am ET. Mylan slumped 5.4-per cent to $43.15 after USA presidential candidate Hillary Clinton joined a Senate committee in asking why the cost of its allergy treatment EpiPen had soared.
“We’re positioned for dollar strength”, said Jason Thomas, Los Angeles-based chief investment officer of Savos Investments, a unit of AssetMark Inc., an asset manager that oversees US$31 billion.
Currency investors’ sentiment has shifted back and forth in recent weeks on how aggressive the Fed will be after it raised borrowing costs in December previous year for the first time since June 2006.
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James Steel, an analyst at HSBC says, “there is a chance that Yellen could decide that a stronger signal about near-term policy would now be appropriate in light of diminished risks globally and an improved USA labor market”. Volumes have been down all week, while the volume on the S&P 500 overnight was more than 15% below its 100-day moving average and the Dow Jones had volumes down more than 27%.
