Global Central Banks All That Forex Traders Can Speak About

The US dollar recovered a bit on Wednesday but remained well below its trading range at 94.95 but the dramatic fall on Tuesday weighed heavily on its cross currencies. The Japanese yen was hit the worse and continued to fall throughout the day to trade at 101.69. Just days ago Japanese officials were breathing a sigh of relief as the yen traded well above 103 but the safe haven currency reversed course. The dollar lost ground sharply and traded around ¥101.50 in Tokyo , dragged down by weak U.S. economic data.

At the end of the day the dollar stood at ¥101.54 down from ¥103.35 at the same time Tuesday. The euro was at $1.124.

The dollar carried over its weakness from overnight trading overseas, where the greenback hit a one-week low below ¥102 on the back of sluggish U.S. economic data, including the U.S. Institute for Supply Management’s non-manufacturing activity index for August, which turned out to be worse than expected. Expectations for an early interest rate increase by the U.S. Federal Reserve receded due to the weak U.S. economic data, market sources said. After moving around ¥102 in early Tokyo trading, the dollar plunged to around ¥101.20.

“The dollar was apparently hit by massive selling by a U.S. investment trust fund manager,” an official at a currency brokerage house said.

Today traders focus will shift to the ECB rate decision and Mario Draghi’s press conference. The Governing Council of the European Central Bank is not closer to being able to demonstrate convincingly that its current policy settings are compatible with headline inflation returning to target by the end of the forecast horizon.

Citi analysts say that markets are looking for three ECB policy announcements:

1. We think extension of asset purchases for at least six months would be a first step in the right direction,
2. alongside changes to QE modalities to circumvent any scarcity issues.
3. We also expect a 10bp cut in the refinancing rate to -0.1% to be the first step, ahead of a 10bp cut in the deposit rate to -0.5% in March 2017.

With Eurozone inflation stuck near zero for almost two years and Brexit now threatening to undercut the region’s recovery, economists see European Central Bank President Mario Draghi as highly likely to lengthen quantitative easing for a second time. Also the euro area’s final PMI surveys for August give a weaker impression relative to July, but they still signal that the economic recovery remains on track in the third quarter. Traders can expect the euro to take a hit later today.

On Wednesday the Bank of Canada held rates and policy. The Bank of Canada opted to keep its benchmark interest rate at 0.5 per cent on Wednesday, the same level it’s been at for more than a year.

The central bank, led by Governor Stephen Poloz, said Wednesday that underlying economic conditions don’t warrant a change in policy at this time.  The Canadian dollar has been supported by the weakness in the US dollar and the jump in gold and oil. The USD/CAD is trading at 1.2891 with the pair bouncing 45 points immediately after the announcement.

The UK pound tumbled 90 points after its climbing over 100 points on Tuesday and is trading at 1.3348 remaining near the top of its post Brexit trading range. GBP is under pressure amidst a broad-based degree of profit-taking. There is also understandably some caution being expressed by traders as we get fresh insights into the thinking of the decision makers over at the Bank of England.

Governor Mark Carney is leading testimony to the Treasury Select Committee which is holding hearings on the August 4th Quarterly Inflation Report when the Bank’s Monetary Policy Committee (MPC) delivered an interest rate cut and announced the expansion of the dormant quantitative easing program. The Governor said the probability of the UK falling into recession have diminished thanks to the Bank’s actions.