Advertisement
Advertisement

Central Bank Rate Hike Chatter Dominates Forex Markets

By:
James Hyerczyk
Updated: Jul 2, 2017, 06:46 UTC

The U.S. Dollar fell sharply last week against a basket of currencies as talk of higher global interest rates dominated upbeat U.S. economic data and

Central Bank Rate Hike Chatter Dominates Forex Markets

The U.S. Dollar fell sharply last week against a basket of currencies as talk of higher global interest rates dominated upbeat U.S. economic data and hawkish commentary from Fed officials.

EURUSD
Weekly EUR/USD

European Central Bank

The plunge in the September U.S. Dollar Index futures contract began last Tuesday when the Euro soared to a nine-day following hawkish remarks from European Central Bank President Mario Draghi  who said that the bank needed to be “prudent” when “gradually” updating its monetary policy. Forex traders interpreted his words to mean that the ECB is preparing to taper its stimulus.

Although the central bank said that the markets had misinterpreted Draghi and the bank was not considering a reduction in stimulus just yet, the cat was out of the bag and the EUR/USD continued to rally to its highest level since June 24, 2016.

GBPUSD
Weekly GBP/USD

Bank of England

The Bank of England also chimed in to pressure the U.S. Dollar when BoE Governor Mark Carney on Wednesday delivered a slightly more hawkish message than the ECB. Carney said the Bank was likely toned to raise interest rates and would debate this “in the coming months”.

Speaking at a European Central Bank conference in Portugal, Carney said policymakers would need to look at the extent to which stronger business investment offset a slowdown in consumption, as well as growth in wages and labor costs.

British government bond futures fell by 60 ticks after the BoE released the remarks and yields on the 10-year gilts rose by 9 basis points to 1.184 percent, their highest since May 11.

USDCAD
Weekly USD/CAD

Bank of Canada

Bank of Canada Governor Stephen Poloz triggered surge in the Canadian Dollar when he told CNBC that interest rate cuts “have done their job.” Investors interpreted this to mean the central bank was preparing to raise interest rates. The USD/CAD plunged to its lowest level since February following the news.

Poloz went on to say that interest rate cuts made in 2015 have done their job and the Bank of Canada needs to consider its options as excess capacity is used up. Poloz also said Canada had unexpectedly strong growth in the first quarter and while the central bank expects growth to slow moderately, it will not slow down dramatically.

“But certainly we need to be at least considering that whole situation now that the excess capacity is being used up steadily,” Poloz added.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

Did you find this article useful?

Advertisement