September 19 2012

In the broadcast today: Will this be another Fizzled EUR Rally? As the EUR corrects some of its recent gains against the USD, we continue to monitor the single currency, we examine the latest institutional forecasts and ponder if this could become yet another fizzled euro rally, we analyze the test of an important support level for the EUR/USD currency pair, we note the weakening of the GBP vs. USD, we keep an eye on the pullback in the USD/JPY currency pair, we highlight the market’s reaction to the Bank of Japan interest rate announcement, the Bank of England Meeting Minutes, and the U.S. Housing Starts and Existing Home Sales, we discuss new forecasts from Goldman Sachs and Citigroup, and prepare for the trading session ahead.

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The MPC this month voted unanimously to keep interest rates at 0.5%. Minutes of this month’s monetary policy committee meeting show some members believe more QE will soon be needed. The GBP comes under pressure…

Powered by article titled “Bank of England MPC minutes raise quantitative easing hopes” was written by Josephine Moulds, for on Wednesday 19th September 2012 10.12 UTC

Hopes the Bank of England will pump more money into the economy have been raised after minutes of the monetary policy committee’s last meeting revealed some members believe more stimulus will soon be needed.

The MPC this month voted unanimously to keep interest rates at 0.5% and leave the targeted size of the quantitative easing (QE) programme at £375bn.

According to the minutes, released on Wednesday, the decision on QE was “relatively straightforward” for most members. Some, however, felt that more stimulus would be needed in the future, and one said there was a good case for it now.

Analysts suggested that the dovish member could be David Miles, who recently said monetary policy was at its most expansionary in history and should be moved further in that direction. But there will be speculation over the view taken by former CBI economist Ian McCafferty, who took over from Adam Posen – a great champion of QE – this month.

The committee noted that inflation – which dropped to 2.5% in August – would fall back more slowly than previously anticipated. The minutes noted that some MPC members believe inflation is likely to remain close to the central bank’s 2% target, suggesting that it is not seen as a barrier to more stimulus. Under QE, the bank prints money to buy assets such as government bonds with the aim of boosting lending and economic output, which can cause prices to rise.

The MPC said it was too early to gauge the impact of the funding-for-lending scheme, but said there were “encouraging signs” that it was helping to bring down mortgage rates.

The committee expects UK GDP to rise sharply in the third quarter, following the drop in output blamed on the diamond jubilee in the previous quarter, and helped by “a possible small boost from the Olympics”. It said the UK could return to growth by the end of the year if economic activity remains at the levels it reached in August. The committee also noted that the labour market had remained surprisingly resilient despite the recession.

Most economists expect the Bank of England to increase its asset purchase programme after the next round of QE is completed in November. If it does, it would join a co-ordinated effort by central banks around the world to drive an economic recovery.

On Tuesday night, the Bank of Japan expanded its asset purchase scheme by ¥10 trillion (£78bn), in a bid to keep borrowing costs down. Last week, the Federal Reserve announced a rolling programme to buy $40bn (£24.7bn) a month in mortgage-backed securities, dubbed QE3. The European Central Bank this month announced its own programme to buy up the bonds of crisis-hit states, if they agree to stringent conditions.

Mario Draghi, president of the ECB, said on Wednesday that Europe’s central bank could start publishing the minutes of its meetings. Draghi told German newspaper Süddeutsche Zeitung that it would follow a similar process to the Bank of England’s MPC and release the minutes a few weeks after the monthly meeting. The newspaper said the German and Finnish members of the central bank’s governing council have already expressed their support for the idea. © Guardian News & Media Limited 2010

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