Forex News | Currency News by Forexlive

Bank of England’s monentary policy committee to meet this week and they’re highly likely to hold fire on any further quantitative easing.

Canadian regulators to weigh in…Expect some CAD weakness if they nix the deal.

Details via Bloomberg.

About bloody time…

• US GDP rises 2.0% in Q3, inventories rise largely responsible
• Shots exchanged across North/South Korean border
• Chicago PMI rises to 60.6 in October from 60.4 in Sept; better than expected
• University of Michigan consumer sentiment index slips to final 67.7 from 68.2 (preliminary) in October; weakest since November 2009
• Meeting between Chinese and Japanese PM’s dropped at last minute
• Suspicious packages found on air freight carriers originating from Yemen to the US
• French strikes ends at ports and oil terminals
• Portugal’s government and opposition reopen budget talks Friday
• S&P 500 unch; US 10-yr yields fall  6 bp to 2.60
• No September/October meltdown in US equities as feared

It was a very choppy, thin month-end market in the U today, one in which the dollar fell broadly.

USD/JPY closes below 80.65, the previous all-time low set in April 1995. We tested the 80.42 level several times during US trade but held above. Protection of 80.00 barrier options is said to be significant, keeping traders from pushing too aggressively for the all-time intraday lows at 79.75.

EUR/USD was out of the limelight today, trading within yesterday’s range. 1.3850/1.3935 contained most of the US price action but we traded choppily within that range amid poor liquidity.

Cable extended its gains today as traders covered short positions as hopes for added BOE liquidity evaporate but anticipation of further Fed easing still running very high. Cable closes at 1.6020, its highest level in 11 days. Mid-October highs at 1.6108 is the next target to the topside. Month-end EUR/GBP demand had less impact than normal , indicative of how strong the demand for the pound was today.

Commodity currencies were boosted by heavy demand for gold today. Rather than a “risk-on” mood, it was geopolitical uncertainty which underpinned the yellow medal. North/South Korea exchanging small arms fire, China/Japan bickering and what appears to be a terrorist dry run using the air freight system all contributed to jitters. AUD/USD reached 0.9822 and closes at 0.9803. USD/CAD ends at 1.0198 from 1.0170 lows.

US DATA: Oct farm prices +8.1%.

“Out of an abundance of caution” security personnel say…

A package originating in Yemen is said to be on board the flight.

USD/JPY trades just pips above its lows for this trend and heads into the weekend slightly below its all-time low closing level at 80.65.

The BOJ’s JPY index was at the highest level since we started paying attention after the last bout of intervention, so that should keep traders somewhat on guard for another round of BOJ buying. Another deterrent to USD/JPY sellers near-term is protection of 80.00 barriers, which is said to be considerable.

Below 80.00 (and 79.75 all-time intraday lows), it likely gets very, very ugly.

If they BOJ/MOF is gonna spend any ammo, they’d be smarter to do it now than to try and catch a falling knife below 80.00.

–QE2 Likely To Be Incremental; Greater Impact On Infln Expectations

By Brai Odion-Esene

WASHINGTON (MNI) – U.S. economists agree that the release of data
Friday showing a 2% advance estimate of third quarter GDP is unlikely to
influence Federal Reserve officials at next week’s Federal Open Market
Committee meeting, with most monetary policymakers already of the
opinion that the economy needs a boost.

Third quarter GDP showed “resilience,” Scott Anderson, senior
economist at Wells Fargo, told Market News International. Looking below
the surface, however, the strength of consumption growth was still quite
uneven with a slowing in growth rates for durable and non-durable goods
spending.

The data suggested that growth in the U.S. will continue to be
below trend, with the country “continuing to muddle through here for a
while,” he said.

“The Fed probably sees a very weak economic environment over the
coming year,” Andserson added, forecasting growth to be 1.5% to 2% in
the fourth quarter, before coming in between 2% and 2.5% next year.

So a case can be made for more quantitative easing, Anderson said,
because the Fed is in danger of failing on both of its mandates. “I
don’t think anything that came in today’s data would change the Fed’s
view on the outlook for the economy,” he added.

George Mokrzan, a senior economist with Huntington Bank, called the
2% advance estimate for third quarter GDP “a nice solid number,” one
that is comprised of broad-based participation by the consumer, with
business equipment spending also going up. So while the number is not
great it indicates the economy is growing, he said.

“It certainly reduces the risk of recession,” Mokrzan said. “It may
not be a great economy, but it’s not a bad one either.”

Friday’s GDP data, however, may not have a significant impact on
next week’s meeting of the FOMC, he said. “I think the positions that
are being taken are based more on a longer-term type view.”

A lot of the Fed officials, Mokrzan said, have a neo-Keynsian view
of the economy, one that says if there is a large unemployment rate and
a low capital utilization rate, that excess capacity is enough to put
downward pressure on prices and result in inflation concerns in the
longer-term.

On the other hand, some Fed officials are likely worried about the
possible “unintended consequences” from conducting additional
quantitative easing. There are some uncertainties, Mokrzan said, if the
Fed goes ahead and begins to purchase Treasury securities.

“Some are going to be concerned about monetizing of the debt,
others are going to be concerned that interest rates will be pushed so
low that there could be international market-type repercussions.”

Mokrzan believes any additional QE program is unlikely to have a
siginificant impact on economic growth, but it could at the margin. “It
might give a little boost to those that are less inclined to go ahead
with more aggressive action,” he said.

He does expect, however, that any QE2 program will have a bigger
impact on inflation than growth.

Wells Fargo’s Anderson agreed, noting that in the minutes of the
September FOMC meeting, Fed officials noted they might not be expecting
a big decline in nominal interest rates from more QE. “But they said
they could still declare victory if they pushed up inflation and
inflation expectations because that would reduce the real interest
rate,” he added.

So there is a chance that market rates could rise a bit, or stay
around current levels, even as the Fed embarks on another round of QE,
Anderson said.

“It’s a dangerous game the Fed’s playing here,” he went on to warn.
“Trying to bolster inflation expectations is a tricky game that could
easily get out of Fed’s control.” The central bank has experience is
trying to limit inflation expectations, but not much in bolstering them,
Anderson added.

Inflation expectations are “sticky,” he warned, once they rise it
is hard to get them back down again. This means the Fed is likely to
proceed gingerly and eschew the ‘shock and awe approach,’ unless a
recession or another financial shock is imminent.

In recent research, however, the Washington-based Institute of
International Finance sees three “second round” transmission mechanisms,
through which QE2 can positively impact economic growth.

First, lower Treasury yields will pull down yields on other debt,
narrow spreads and encouraging investors to take more risk, the IIF
said, allocating more credit to less creditworthy corporate borrowers
that were hardest hit in the 2008-09 credit crunch.

Second, lower yields — and a signal from the Fed that it is
willing to pull out the stops to produce higher growth — have spurred
the stock market, which is a support both to capital spending and
consumer spending. Finally, lower yields can help push the currency
down, thus helping to promote net exports.

And despite any concerns some Fed officials might have regarding
another round of QE, the high rate of unemployment means it is
politically unsustainable for the Fed to just sit on its hands, Anderson
said.

Mokrzan agreed, noting that based on the high level of
unemployment, “historically the Fed would be trying to do something.”

He also agreed with Anderson that it would be better for the Fed to
implement a “measursed” program of quantitative easing, as opposed to a
large scale purchase program. This would mean decisions, on whether or
not to continue with purchases, being made on realtime basis.

Anderson also predicts the Fed will go with an open-ended
commitment that provides some flexibility. “They may even tie it to
some sort of nominal anchor like a price target to give the market a
little guidance about how much they might actually end up adding,” he
said.

Economists at Barclays Capital also expect the Fed to take the slow
and steady approach to QE2. They wrote that although a larger headline
purchase amount was appropriate when financial markets were severely
dislocated, “we see the FOMC as wanting to return to an environment
where monetary policy decisions are made more incrementally with forward
guidance that anchors market expectations.”

Regarding guidance, Barclays expects the pace and duration of
purchases will be linked to achieving the dual mandate on inflation and
employment. “We see both employment and inflation as staying below the
Fed’s mandate for some time, so incremental purchases could continue
well into next year,” they predicted.

Going with the “shock and awe” approach, Mokrzan warned, would
leave no room to guage the market reaction. It would have a huge impact
on the market, he said, but with uncertainty as to what that impact
would be.

Morkzan also said unveiling a massive QE2 program could also have
the unintended consequence of adding to currency tensions by increasing
downward pressure on the dollar to drop further, while a more
incremental response to “some softness” in the U.S. economy would not.

It is certainly possible that QE2 could add to currency tensions,
Anderson said, especially if the Fed goes with a large program. Still,
“every country has their own economic agenda and I think it’s probably
unfair for the Fed to have to support other economies through tighter
monetary policy.”

The Fed, he said, is certain to go ahead with additional
quantitative easing even with those concerns.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MK$$$$,MAUDS$,MN$FX$,MGU$$$,MMUFE$]

• <
• 1
• 2
• 3
• 4
• 5
• ...
• 252
• >