September 2013

Sept. 22, 2013 (Allthingsforex.com) – Following the Fed’s decision to abstain from reducing the size of monthly asset purchases, in the week ahead traders will shift their focus from the U.S. dollar to the euro as the outcome of the German elections and economic data from the euro-zone offer more insights on the future policies of the leader of the union and the state of the 17-nation economy.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    EUR- Germany Federal Elections, Sun., Sept. 22, all day event.

At the time of writing of this article, the latest polls pointed to a clear win for Chancellor Angela Merkel- the country’s first female chancellor and only the fourth chancellor since World War II to win a third term. Ms. Merkel’s Christian Democratic bloc is set to take about 42.5% of the vote and that would give her a one-seat majority in the lower house of the Bundestag, just enough to govern without trying to find a coalition partner (although a coalition to assure more significant majority would likely be formed in upcoming weeks). A third term for Chancellor Merkel should be euro-positive as German policies remain unchanged. Germany is the biggest contributor in the 496 billion euro bailout fund and the current programs of austerity in exchange for financial aid will probably continue to be the blueprint of choice for German participation in future bailouts. The euro could extend its recent rally towards the 2013 high around $1.37.

2.    EUR- Euro-zone Manufacturing and Services PMI- Purchasing Managers Index, a leading indicator of economic conditions measuring activity in the manufacturing and services sectors, Mon., Sept. 23, 4:00 am, ET.

The chronic contraction in the euro-zone’s manufacturing and services sectors finally ended a couple of months ago and both indexes are expected to continue to improve. The Manufacturing PMI is forecast to register another positive month with a reading of 51.8 in September from 51.4 in August, while the Services PMI also heads higher with a preliminary estimate of 51.1 in September from 50.7 in the previous month. Solid PMI reports should keep the EUR supported.

3.    EUR- Germany IFO Business Climate Index, a leading indicator of economic conditions measuring the outlook of businesses, Tues., Sept. 24, 4:00 am, ET.

This could be yet another report that might give the euro a boost next week. The business outlook in the euro-zone’s largest economy is forecast to be more optimistic with the Ifo index forecast to rise to 108.4 in September from 107.5 in August.

4.    USD- U.S. Consumer Confidence, a measure of consumers’ outlook on the economy, Tues., Sept. 24, 10:00 am, ET.

In contrast to the euro-zone data, the outlook of U.S. consumers is expected to deteriorate with the consumer confidence index forecast to decline to 79.9 in August from 81.5 in the previous month.

5.    USD- U.S. New Home Sales, an important gauge of housing market conditions measuring sales of newly-constructed homes, Wed., Sept. 25, 10:00 am, ET.

Mimicking the jump in existing home sales, new home purchases in the U.S. are also forecast to increase to 422K in August from 394K in July.

6.    GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Sept. 26, 4:30 am, ET.

In the first quarter of the year, the U.K. economy managed to avoid an unprecedented triple-dip recession and expanded by 0.3% q/q. The economy grew at an even faster pace by 0.7% q/q in the second quarter and this number is expected to be confirmed as the final Q2 2013 reading. The report could serve as a reminder that the U.K. recovery is on the right track and could keep the GBP rally intact.

7.     USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Thurs., Sept. 26, 8:30 am, ET.

There might be another upward revision on the horizon with the final Q2 GDP reading forecast to show the economy growing faster by 2.7% q/a in the second quarter, compared with the previous estimate of 2.5% q/a. The USD could benefit from accelerating U.S. economic growth which could raise the odds that, despite of the decision to sit on the sidelines in September, the Fed might announce the tapering of asset purchases before the end of the year.

8.    USD- U.S. Pending Home Sales, a leading indicator of housing market activity measuring pending home sale contracts, Thurs., Sept. 26, 10:00 am, ET.

Pending home sales in the United States are expected to register a smaller decline of 0.9% m/m in August, compared with the unexpected 1.3% m/m drop in July as a result of higher mortgage rates.

9.    JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Sept. 26, 7:30 pm, ET.

Inflationary pressures in Japan have been on the rise in recent months and could stay that way with the National core inflation gauge forecast to remain at 0.7% y/y in August, same as the reading in July. With the index exiting deflation territory and heading towards the Bank of Japan’s 2% inflation target, the report could reduce expectations that the Japanese central bank will need to step up its QE campaign, which could mean less pressure on the yen.

10.     USD- U.S. Consumer Sentiment, the University of Michigan’s monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Sept. 27, 9:55 am, ET.

After the disappointing drop in the preliminary estimate, the U.S. consumer sentiment index is forecast to be revised slightly higher to 78.2 in September, but still down from 82.1 in the previous month. The USD will continue to feel the pressure if the U.S. economic data weakens and eliminates the chance of a Fed taper in 2013.


USA 

Polling data shows that Sunday’s German elections will be close, and could determine eurozone economic policy for the next stage of the crisis. Tight fight expected. Latest polling shows election is neck-and-neck. Grand coalition probably the most likely option…

 


Powered by Guardian.co.ukThis article titled “Markets await German elections; India surprises with interest rate rise – live” was written by Graeme Wearden (earlier) and Nick Fletcher (now), for theguardian.com on Friday 20th September 2013 16.11 UTC

Here’s some Friday night ratings action:

On Malta Fitch said:

There has been significant fiscal slippage. Malta’s general government deficit was 3.3% of GDP in 2012, well above both the government’s target (2.2%) and Fitch’s September 2012 forecast (2.6% of GDP). This slippage has carried over to 2013, when Fitch forecasts a deficit of 3.6% of GDP, compared with 2.7% in the original 2013 budget. The European Commission has re-opened the excessive deficit procedure (EDP) against Malta, with the deadline for correcting the excessive deficit set for 2014. In its previous rating review (September 2012), Fitch identified material fiscal slippage in 2012 as a negative rating trigger.

And on Croatia being cut to junk:

Croatia’s fiscal outlook has deteriorated since Fitch’s previous sovereign rating review in November 2012. The agency has revised up its forecast for this year’s general government deficit to 4.7% in 2013 from 3.9%, while general government debt/GDP is now expected to peak at 66% of GDP in 2016, up from our previous forecast of 62%.

A structurally weak growth outlook has impaired the prospects for fiscal consolidation and the attainment of public debt sustainability.

A look at the possible problems facing Angela Merkel should she win the German election this weekend, courtesy of the Wall Street Journal. A taster below with the full story here:

Angela Merkel has become Europe’s most popular leader by telling Germans they don’t need to change, and by shielding them from much of Europe’s debt-crisis pain at the same time.

But as Ms. Merkel heads into a likely third term as Germany’s chancellor, there are increasing calls from the business community, which she has counted among her most loyal supporters, and others for her to move more quickly to confront simmering domestic problems that they worry will eventually endanger German prosperity.

The time to fix the problems—energy costs, worn-out roads and gaps in education among them—is now, they say, while the economy is healthy.

In the corporate world, Vodafone has received clearance from the European Commission for its takeover of Kabel Deutschland, and with that final hurdle passed, the deal is expected to be completed on 14 October.

Eurozone consumer confidence rose to a two year high in September, according to new figures from the European Commission, but is still in negative territory.

The index rose to -14.9 from -15.6 in August, compared to expectations of a figure of around -15. The news that strong German and French growth had helped pull the eurozone out of recession clearly helped sentiment, although the recovery remains fragile, as evidenced by Italy cutting its growth forecasts earlier today. Annalisa Piazza at Newedge Strategy said:

Consumer confidence is expected to have supported by the relative good news on the development of the EMU economy (that has finally emerged from a 6-quarter recession). News that the ECB is willing to maintain the current accommodative policy might have also played a role as households see reduced risks to their disposable income in the future. On the other hand, the still high unemployment rate and geopolitical uncertainties are likely to have put a lid on a more pronounced uptick in September.

Dow Jones opens lower after Fed taper comments

Wall Street has opened lower, not surprisingly given Fed official James Bullard’s comments that tapering might begin in October. The Fed gave markets at boost following Wednesday’s surprise decision by the US central bank to maintain its $85bn a month bond buying programme.

But after Bullard’s hint, the Dow Jones Industrial Average is down 22 points or 0.14% in early trading. However the Nasdaq had edged higher, up 0.15%, helped by a near 3% rise in Apple shares on the day queues form for the tech giant’s latest iPhones.

More German polling figures, showing the SPD and AfD edging up:

Updated

Across the Atlantic, observers are still trying to get their heads around Ben Bernanke’s decision on Wednesday not to start scaling back the US Federal Reserve’s $85bn a month bond buying programme.

Most economists had expected a move to wean the markets off the quantitative easing fix this month, but Bernanke pointed to the US economy still being too fragile.

But today Fed official James Bullard suggested to Bloomberg that the so-called tapering might now start in October. So we have all the “will-they-won’t-they” speculation to look forward to for another few weeks yet.

Updated

Budget airline Ryanair has promised to mend its ways, after being rebuked about its “abrupt” culture by shareholders today.

Reuters writes:

Ryanair, Europe’s biggest budget airline, has promised to transform its “abrupt culture” in a bid to win customers from costlier rivals, admitting for the first time that a reputation for treating its passengers badly might have become a problem.

The Irish firm, this week voted the worst of the 100 biggest brands serving the British market by readers of consumer magazine Which?, said on Friday it would become more lenient on fining customers over bag sizes and overhaul the way it communicates.

“We should try to eliminate things that unnecessarily piss people off,” chief executive Michael O’Leary told the company’s annual general meeting, after several shareholders complained about the impact of customer service on sales.

That’s the spirit.

More here: Ryanair must stop ‘unnecessarily pissing people off’, says O’Leary

And on that note, I’m going to fly home. Nick Fletcher has the controls. Thanks for reading and commenting.

Maybe see you online on Sunday night for the election excitement? Our foreign team will be all over it, and I’ll be on Twitter as @graemewearden as usual.

Updated

Forsa: German election is neck-and-neck

New polling data from Germany has just been released, showing that Sunday’s election is neck-and-neck with neither side on track for a clear majority.

The poll from Forsa found that the current CDU/CSU-FDP coalition would win 45% of the vote, as would their main rivals. Another key point, the eurosceptics Alternative For Germany would not hit the 5% threshold.

  • CDU/CSU 40%.
  • SPD 26%. 
  • Greens 10%.
  • LINKE 9%. 
  • FDP 5%
  • AfD 4%
  • Pirates 2%

I didn’t mention earlier, but the SDP has ruled out forming a government with the more left-wing Linke party, given its views on foreign affairs and its opposition to NATO. That could change in the heat of coalition talks, of course.

Today’s UK public finance figures mean George Osborne is on track to hit his fiscal targets for this year.

My colleague Katie Allen explains all:

A drop in government spending helped cut Britain’s borrowing last month, prompting economists to forecast that the chancellor is on track to meet his fiscal target for this year.

Borrowing for the last financial year as a whole was also revised down slightly by the Office for National Statistics as it published data on the public finances.

As mentioned earlier, Britain ran a deficit of £13.2bn in August – smaller than last year’s £14.4bn.

Katie continues:

The government’s progress on cutting Britain’s deficit – the gap between the government’s income and spending – was described as “painfully slow” by one business group. But analysts said the public finances appeared to be on an improving trend.

More here: Osborne on track to meet fiscal target as UK public borrowing falls

In the City, the Foxton’s estate agent chain continues to enjoy a stellar first day on the stock market. Its shares are up 20% this morning, at 277p from the 230p it floated at.

The FT says it shows “a recovery in both share offerings and the residential property market in the UK”.

Joshua Raymond, chief marketing strategist of Cityindex.co.uk, calls it a “hugely impressive” debut, and deliciously timed, too.

With London house prices shooting in the midst of a pricing bubble thanks in part to the Help to Buy Scheme, investors are trying to gain exposure to firms that directly benefit from this and as such the Foxtons IPO could not have been better timed in terms of its attractiveness.

Or as one fund manager puts it:

Updated

Thanks to BigBlue80 for flagging up the polling data which suggests Angela Merkel’s current CDU-CSU/FDP coalition would not get enough votes to return to power.

In the past, the most reliable of the large pollsters was the Institut für Demoskopie (IfD) Allensbach

They predict the following:
CDU/CSU 39,0%
SPD 26,0%
Grüne 11,0%
Linke 9,0%
FDP 6,0%
AfD 3,5%
Piraten 2,0%
Sonstige 3,5%

I.e. 45% for the current CDU/FDP coalition and 46% for the three major left parties.
It’s quite certain that Merkel stays chancellor although I would not completely discount the option of a SPD-Left-Green coalition. Which sounds like change but would mainly lead to too much instability to get anything done.

AfD might only influence politics in the sense that Merkel will have to watch her right-flank in the next few years. While these one-trick ponies usually don’t last long, they would have 4 years to embarass Germany abroad.

Updated

Speaking of eurosceptics….

Italy cuts growth targets

The Italian government has bowed to the inevitable today, tearing up its growth targets and admitting that its budget deficit is heading over target.

Enrico Letta’s government cut its forecast for 2013 to a contraction of -1.7%, down from -1.3% before. In 2014, it expects growth of 1%, down from 1.3%.

Both forecasts remain more optimistic than the IMF’s own targets — the Fund expects a 1.8% contraction in 2013 and a 0.7% expansion in 2014.

That difference could matter — on Letta’s calculations, the Italian deficit is on track to hit 3.1% this year. That’s over the EU’s target, and econony minister Fabrizio Saccomanni told reporters that it will be “corrected quickly”.

Sounds like the EU are putting pressure over the deficit too:

Saccomanni also predicted that Italy’s two-year recession will end soon, with GDP flat this quarter and then rising in the last three months of this year.

Updated

Tony Connelly, Europe Editor for RTE News, reports that the eurosceptic Alternative für Deutschland party are in good spirits ahead of Sunday’s election.

Party loyalists are confident they’ll win enough support to claim seats in the Bundestag. They’re also looking ahead to next year’s European elections.

Emma Tunney, an intern with Open Europe, attended one of Angela Merkel’s campaign rallies this week, and writes that Europe was only raised late in the chancellor’s speech:

Here her stance was clear – Germany must hold the course. Germany’s continued commitment to help its friends is necessary, that said she was quick to add that Germany had every right to expect those receiving assistance make meaningful changes to their financial systems.

Her assertion of a CDU rejection of the possibility of mutualizing European debt was well received, and was perhaps the most definitive statement on what we could expect should she become Chancellor once again.

Parish notice: my colleagues on the foreign desk have been tracking the twists and turns of the German general election in their own blog: German Elections Blog 2013.

Updated

From Berlin, my colleague Philip Oltermann flags up that the unfolding story of how US intelligence have been accessing Europe’s electronic communications was raised by Peer Steinbrück yesterday,

The NSA affair became a German election issue on Thursday when Social Democrat candidate Peer Steinbrück accused Angela Merkel of “negligent” treatment of the issue.

He said the revelations of US internet surveillance represented a “far-reaching interference with our basic democratic rights and personal self-determination”, and that Merkel had failed to “protect German citizens’ freedoms and interests”.

More here: Peer Steinbrück accuses Angela Merkel of negligence over NSA revelations

Electionista has crunched the recent polling data and concluded that Angela Merkel’s CDU-CSU/FDP coalition has just a 50.5% chance of winning a majority on Sunday:

On that point….

Updated

AP: Tight fight in Germany

Here AP’s latest dispatch from the German political frontline. It explains how the Free Democrat party are battling to hit the crucial 5% mark to get into the Bundestag.

Chancellor Angela Merkel’s conservatives and her struggling coalition partners were fighting over votes Friday in the final stretch of campaigning for Germany’s election as polls pointed to a tight outcome.

Merkel is heavily favored to emerge from Sunday’s election with a third term, but her hopes of continuing the current coalition of her conservatives and the pro-market Free Democrats are in the balance.

A ZDF television poll conducted Wednesday and Thursday showed a statistically insignificant one-point lead for the alliance over the combined opposition in line with other recent surveys showing a dead heat.

The Free Democrats are pushing hard for Merkel supporters’ votes after being ejected from Bavaria’s state legislature in a regional vote last weekend. In national polls, they’re hovering around the 5 percent support needed to keep their seats in Parliament.

Merkel and her conservative Union bloc are pushing back, saying they have no votes to give away. If the coalition loses its majority, the likeliest outcome would be a “grand coalition” between Merkel’s party and the center-left Social Democrats and the conservatives want to be as strong as possible.

“I would advise us all in the final hours before the election to fight our political opponents and not argue over each other’s votes,” Bavarian governor Horst Seehofer, who led Merkel’s conservative bloc to victory there, told the daily Die Welt.

The Free Democrats have “potential of well over 5 percent,” he was quoted as saying. They won nearly 15% at the last election.

“I think it’s a very strange understanding of democracy when the impression is raised that citizens’ votes belong to the chancellor,” the Free Democrats’ general secretary, Patrick Doering, shot back on n-tv television.

ZDF’s poll of 1,369 people gave Merkel’s conservatives 40 percent support and the Free Democrats 5.5%. Challenger Peer Steinbrueck’s Social Democrats polled 27%, their Green allies 9% and the hard-line Left Party with which the center-left parties say they won’t work 8.5%.

The poll showed a new anti-euro party, Alternative for Germany, at 4% not enough to win parliamentary seats. It gave a margin of error of plus or minus up to three percentage points.

But do note the caveat from earlier – some analysts think AfD are doing better than that…..

Looking back at the German election… here’s a handy graphic showing how last night’s polling data would translate into seats in the Bundestag:

The CDU’s 266 seats,plus the FDP’s 37, would give the current coalition a small majority –which could make for some tight votes on future eurozone policy.

Updated

On a lighter note, there’s a correction in the Financial Times today that deserves a wide audience (with many thanks to Luke Baker of Reuters)

Updated

Britain’s public finances were a little better than expected in August. The monthly deficit came in at £13.157bn, compared with estimates of around £13.3bn. Government revenues rose by 1.4%, and spending dipped by 2.2%.

So far this year, the UK had borrowed £46.8bn to balance the books, compared to £50.5bn for the first eight months of 2012. More to follow.

Updated

Corporate news

In the UK business world, the Office for Fair Trading has launched an investigation into possible price fixing on sports bras.

More here: OFT probes sports bra price fixing

And everyone’s favourite (?!) estate agent, Foxtons, has launched on the London stock market. Floated at 230p a share (valuing the firm at nearly £650m), its shares have leapt to 280p. Even London house prices aren’t going up that fast.

More here: Foxtons share price soars on debut

Adidas profits warning pushes DAX down

European stock markets are mostly lower today, but there’s not much afoot.

The initial rally sparked by the Federal Reserve’s decision on Wednesday not to taper its stimulus package has worn off, and traders appear to be hunkering down ahead of the German election.

The German stock market has been pulled down by a profit warning from Adidas last night.

Adidas blamed adverse currency effects, a distribution problem in Russia and poor trading at its golf business.

• FTSE 100: down 6 points at 6618, down 0.1%

German DAX: down 9 points at 8681, down 0.12%

French CAC: down 5 points at 4200,-0.12%

Italian FTSE MIB: down 1 point at 18056, – 0.01%

Spanish IBEX: up 11 points at 9,165, +0.13%

Updated

Here’s some early reaction to India’s surprise interest rate decision, which I’ve taken from Reuters.

Anjali Verma, chief economist at PhillipCapital:

Hiking the repo rate was unexpected. The governor is clearly worried about inflation. He is saying the improved international conditions will take care of the current account deficit funding and his focus will shift to fiscal deficit and inflation, which were taking a backseat.

Anubhuti Sahay, economist at Standard Chartered:

The statement clearly has a strong hawkish bias as it states that with a relatively more stable exchange rate, monetary policy formulation will be determined once again by internal determinants viz inflation and fiscal deficit.

Abheek Barua, chief economist at HDFC Bank:

The long-term signal is that the RBI is still concerned with inflation.

Easing short end of the curve, which it has done by cutting the MSF (marginal standing facility), reducing CRR requirements and etc. is a strong pro-growth signal. I think it (MSF) might be reduced even further.

India battles inflation with surprise rate hike

India’s new central bank governor Raghuram Rajan made a splashy debut in the monetary policy world this morning.

The Reserve Bank of India surprised the markets by announcing a quarter-point rise in India’s headline interest rate, from 7.25% to 7.5%.

However, the RBI also announced that it will unwind some of the “exceptional measures” put in place to support the Indian Rupee, after it slumped to record lows against the US dollar this summer.

Rajan’s message with today’s rate hike is that the RBI will make fighting India’s inflation problem its top priority. The cost of living is rising at 6.1% in India.

As Rajan put it in today’s statement:

Bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately.

The RBI raised rates despite recognising that the Indian economy is weakening, with “continuing sluggishness in industrial activity and service.”

Clearly, Rajan is showing that he’s taking price stability as his mantra. The minutes point out that that the RBI has struggled with this in the past:

What is equally worrisome is that inflation at the retail level, measured by the CPI, has been high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence. Although better prospects of a robust kharif harvest will lead to some moderation in CPI inflation, there is no room for complacency.

A rate hike usually pushes currencies up. However, the rupee promptly dived as the news hit the wires, as traders realised that the RBI was also cutting some of the exceptional measures introduced to support its currency. The rupee fell from 61.7 to the dollar to as low as 62.55.

Stocks also fell on the Indian stock market — with the Sensex sliding over 2.1% so far today.

* – for the record, the RBI trimmed its marginal standing facility rate by 75 basis points from 10.25 to 9.5 per cent, and cut the minimum proportion of the cash reserve ratio that banks must maintain at the RBI from 99 per cent to 95 per cent.

Updated

Interest in the German election extends to the Asian markets, reports IG’s man in Melbourne, Chris Weston.

There’s no panic, but investors are calculating how the result will affect eurozone crisis policy. He writes:

The market sees the election really going one of two ways; either the status quo is resumed (i.e. CDU, CSU and FDP remain in power) or perhaps a grand coalition with the SPD party is put together after a short period of negotiations.

Given the SPD’s previous positive stance on backing a redemption fund, backed by Eurobonds, if they did help govern in future we could see a spike in EUR/USD on the prospect of a more euro-friendly government in place. On the other hand if the AfD (right wing, anti-euro party) get over 5% of votes and thus gain representation in parliament, we could see EUR and US futures gap lower on Monday.

Eurozone concerns have had limited influence on price action of late, but the prospect of having the AfD party having representation in parliament could have implications on eurozone policy going forward. The first thing that springs to mind is Greece.

We know the Greeks have a funding problem; the IMF talked openly about it July; highlighting a €4.4bn funding gap in its current program for 2014 and €6.5bn in 2015.

Given all new loans have to be fully agreed on in the Bundestag (German lower house of parliament); AfD representation in parliament could cause disruptions and uncertainty here.

Updated

On the campaign trail….

Angela Merkel and Peer Steinbrück, the SPD’s candidate for the chancellorship, held election rallies last night in a late drive to win votes before Sunday’s election (see opening post)

Both politicians attracted a healthy turnout of supporters, as these photos show:

Updated

German election looms

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and the business world.

Germany’s general election has loomed over the eurozone for most of 2013. Finally, it’s all-but upon us.

Germans head to the polls on Sunday in a crunch poll that will determine how Europe’s largest countryeconomy is governed for the next four years. There’s no doubt that Angela Merkel’s CDU-CSU party will win the most votes. But there’s real uncertainty over whether her coalition with the Free Democrats can be repeated, or whether we’ll see a grand coalition with left-leaning rivals.

Poll after poll this week have confirmed that it’s just too close to call (do make your predictions in the comments).

The latest survey, released last night by FGW, suggested that Merkel’s coalition would just win enough votes to take power again.

It put CDU at 40%, the Social Democrats at 27%, FDP at 5.5%, Linke at 8.5%, the Greens at 9%, and then the eurosceptic Alternative for Deutscheland at 4% (not enough to win seats).

So, that’s the CDU-FDP on 45.5%, and other major parties at 44.5%.

The key factor is that a party needs 5% of votes to actually get into the Bundestag. And the whisper in Germany (and in the comments section of this blog this week) is the AfD might be doing better than the pollsters believe.

If AfD clear the 5% mark, as some polls have suggested, then German politics will be dramatically shaken up.

Here’s what some respected euro journalists have been tweeting:

So, the eyes of Europe could be on Germany this weekend, and for sometime after if it’s an unclear result.

Traders in the City are already watching with interest, as CMC’s Michael Hewson writes:

It still remains uncertain as to what the electoral maths will be with respect to any new coalition government.

A rising Eurosceptic movement in Germany could well complicate things significantly after a poll by German newspaper Bild showed that the AfD party could well be on course for more than 5% of the vote in the election this weekend.

A move above this threshold would mean that the party would gain seats in the Bundestag and as such would mean that they would have much greater influence over policy as well as make the likelihood of a less stable coalition a real possibility as neither the CDU, or the SPD would have enough votes to form a government with any prospective coalition partners.

I’ll be tracking events through the day as usual. We’ve already had one piece of interesting news outside Europe — India’s central bank has surprised the markets by raising interest rates. More on that shortly…. 

Updated

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Larry Elliott: It is hard to see how the Fed can start to scale back its quantitative easing program this year. Nobody is sure any longer what the Fed is really up to. What will it take for the Fed to start winding down the stimulus?…

 


Powered by Guardian.co.ukThis article titled “Federal Reserve tapering decision has baffled the markets” was written by Larry Elliott, economics editor, for The Guardian on Thursday 19th September 2013 17.19 UTC

The dust was still settling on Thursday after the Federal Reserve delivered one of the biggest surprises to financial markets in many a year. This was a return to the central banking practices of the past when policymakers liked to keep people guessing about their intentions. These days central bankers pride themselves on their transparency.

But nobody is sure any longer what the Fed is really up to. Clearly it got cold feet about announcing even the most modest reduction in the amount of stimulus provided to the US economy through its long-term asset purchase programme, but both the decision and the way it was announced raised more questions than they answered.

Why was there no warning to the markets that the Fed was worried about the slowdown in growth? Why, in the absence of such a warning, did it not go ahead with a tokenist reduction in the stimulus, of say $5bn (£3.17bn) a month, that would have made good the commitment to start tapering but had no material impact on growth? What will it now take for the Fed to start winding down the stimulus?

But although the Fed’s communications strategy now lies in tatters, some conclusions can be drawn from the postponement of the taper. Firstly, policy is going to remain loose for longer than the markets envisaged. It is hard to see how the Fed can start to scale back its quantitative easing programme this year, and the prospect of the process being completed in 2014 – as originally envisaged – is as good as dead.

Secondly, the Fed is even more doveish than the markets thought. When Ben Bernanke first floated the idea of the taper back in May, the notion was that the trigger for the taper would be falling unemployment. But despite a continued moderate improvement in the labour market, the Fed still feels the time is not ripe to act. It took fright when speculation about the taper led to rising bond yields, making mortgages more expensive. It looked askance when share prices fell. And it is worried about the possible consequences of the looming budget showdown between Democrats and Republicans in Washington. So when the time came to act, it blinked.

Thirdly, the Fed has provided a respite – albeit probably temporary – to emerging markets that had seen their currencies fall against the dollar in anticipation of a gradual withdrawal of the stimulus.

Finally, the muted second day reaction to the decision was the reaction to one final unanswered question: does the Fed have the remotest idea how to unwind the stimulus? As Stephen Lewis of Monument Securities put it: Bernanke has given the “impression of being astride a tiger he dare not dismount.”

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

In the trading room today: What’s Next for the USD after the Fed’s Decision? In the aftermath of the Federal Open Markets Committee’s decision not to reduce the size of its monthly asset purchases, we examine the weakening of the USD across the board and explore the potential for further losses of the greenback as a result of “QE forever”, we analyze the bullish breakout in the EUR/USD currency pair, we take a close look at the over-extended rally of the GBP vs USD, we keep an eye on the USD/JPY pair, we highlight the market’s reaction to the FOMC and the Swiss National Bank monetary policy announcements, the U.K. Retail Sales and the U.S. Jobless Claims, we discuss new forecasts from Barclays, Royal Bank of Scotland and UBS, and prepare for the trading session ahead.

Polls point to grand coalition between Angela Merkel’s CDU, Bavarian sister party the CSU and the Social Democrats. One of Europe’s most important elections in years will be likely to go to the wire as the closeness of the contest becomes clear…

 


Powered by Guardian.co.ukThis article titled “German election goes to the wire with no clear winner in sight” was written by Kate Connolly in Berlin, for theguardian.com on Wednesday 18th September 2013 11.21 UTC

The final stretch of the German general election is turning into a nail-biting race between the main parties, with latest polls showing that neither Angela Merkel‘s conservatives together with her liberal coalition partner, the FDP, nor a leftwing-Green party alliance is set to obtain an overall majority.

The opinion polls indicate that one of Europe’s most important elections in years will go to the wire, with the most likely outcome to be a so-called grand coalition between the Christian Democratic Union (CDU) and its Bavarian sister party, the CSU, together with the Social Democrats (SPD).

The poll by the Forsa Institute put the CDU on 39%, the SPD on 25%, and the liberal Free Democrats on 5%, the threshold needed for it to get into parliament.

The Left (Linke) is on 10%, and the Green party on 9%.

Arithmetically the possibilities would be a grand coalition or a conservative-Green union, though the latter is unlikely, having more or less been ruled out by those involved.

As the closeness of the contest became clear, all parties were scrambling on Wednesday to try to garner the support of the large number of undecideds, estimated to be up to a third of voters.

The CDU was keen to warn its voters that splitting their two votes – a “local” vote for a constituency MP, and a second for the party list – would risk huge losses for the CDU.

The party had its fingers burned at a regional poll in Lower Saxony in January when so many second votes were given to the FDP that the CDU was narrowly defeated.

The FDP, meanwhile, whose survival in parliament is in grave doubt after it failed by a considerable margin to enter the Bavarian assembly in last Sunday’s election, was canvassing CDU voters to “lend” their second vote to the FDP to ensure a continuation of the conservative-FDP alliance. It was also trying to rally its core supporters by wheeling out its former star and foreign minister Hans-Dietrich Genscher.

The SPD, buoyed by a solid if not spectacular result in Bavaria, was also trying desperately to motivate its core voters, particularly as experience shows the higher the voter turnout is, the better its prospects have been. The SPD’s leadership has been gathering in recent days to discuss its position in a grand coalition, as its chances of re-entering government loomed ever larger.

An unknown quantity remains the Alternative für Deutschland, a new Eurosceptic party. Although polls show it is expected to get just 3%, analysts say the party should not be underestimated, not least because of the 1 million clicks its YouTube campaign video has received, and the €430,000 of donations it collected just last weekend. The party could yet benefit from the high number of undecided voters, and the growing number of “closet” anti-Europeans.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Tony Abbott and Joe Hockey settle in to trappings of power and a former US Treasury secretary causes some ripples in the markets. What’s behind the recent roller coaster ride of the Australian dollar and will its rally be sustainable?…

 


Powered by Guardian.co.ukThis article titled “Dollar gyrations: a week is a long time in exchange rates” was written by Greg Jericho, for theguardian.com on Thursday 19th September 2013 01.15 UTC

If Tony Abbott and Joe Hockey were in any doubt that being “in charge” of the Australian economy is often more like riding a bucking horse of which you have little control, this week served to give them a quick reminder.

The general consensus is that the biggest problem for the non-mining sector in Australia is the value of our dollar. Since the float in December 1983, the dollar has averaged US$0.75 cents; in the past three years it has averaged US$1.01.

The simple equation is that the higher the dollar the harder it is for industries which rely on exports. So for the past three years manufacturing and other industries – such as tourism – have been crying out for help and hoping for the dollar to fall.

And then in May, on the back of the budget and reductions in the cash rate by the Reserve Bank, the dollar fell in the space of three months from US$1.05 to US$0.90. And yet, despite a few blips since the start of July, it has remained stubbornly around the US$0.90 mark.

And then this week, while Tony Abbott was getting used to his new digs at the AFP college and while Joe Hockey was reading a few incoming government briefs from his department, the dollar rose more than 1% in a day.

The reason for the jump was news from the US that former Treasury secretary under Bill Clinton, Larry Summers, was withdrawing his name from consideration to be the next chair of the US Federal Reserve once the current chair, Ben Bernanke, steps down in January 2014.

Summers was considered President Obama’s likely pick, so his withdrawal was big news in financial circles.

But why did our dollar rise?

Currently the Federal Reserve is engaged in some pretty extraordinary monetary policy – not just low interest rates (effectively zero) but also ongoing “quantitative easing” (which is a weasel word way of saying they are trying to stimulate the US economy by putting $85bn a month into the economy through buying Treasury bonds). This policy not only keeps interest rates in the US low, it also lowers the value of the American dollar, and as a result increases the value of other currencies – such as our little Aussie battler.

The Federal Reserve is now debating when to start winding back (or “taper”) this stimulus. The quicker it winds it back, the stronger the US dollar will be compared with other currencies.

Larry Summers was known to be a critic of the quantitative easing and so, were he to become chair of the Fed, markets were expecting it to be wound back more quickly than if someone else were in charge.

But with his withdrawal the current vice-chair, Janet Yellen, becomes the presumptive favourite. She is known to be a strong supporter of the current policy, and thus markets quickly changed their views of what would happen in 2014.

And so our dollar rose from US$0.924 to $US0.938 in a few hours, before falling back to US$0.93.

All because of something that didn’t happen in the US.

And then on Tuesday the Reserve Bank of Australia released the minutes of its monthly monetary policy meeting. Not surprisingly, it restated its desire for the value of the Australian dollar to stay low, noting, “Some further decline in the exchange rate would be helpful in achieving such an outcome.”

Now this might signal that the RBA would set monetary policy to achieve this aim, but there is a big “but” involved with our current interest rates – the housing market.

It is hard to avoid reading or hearing about the housing boom – which is at this stage more anticipation than reality. Prices have certainly risen but they were coming off a pretty low trough in 2011-12. At the moment, the boom seems concentrated in Sydney where analysts suggest prices could increase by as much as 20% next year, and to a lesser extent in Perth.

While the RBA is not too concerned yet, noting that “households continued to show prudence in managing their finances”, it did express some concern regarding “self-managed superannuation funds” investing in the housing market. The RBA noted that SMSFs were “one area identified where households could be starting to take some risk with their finances” and the RBA indicated it would “closely monitor” the situation.

And so, notwithstanding the RBA’s desire for a low value of the dollar, our currency rose as traders took the view that this meant interest rates were more likely to rise than fall.

Then last night the US Federal Reserve announced it would continue its quantitative easing a bit longer – and so our dollar went up again to US$0.95.

Thus, in the time between the Coalition winning the election and being sworn into government, the dollar has risen by more than 4%. I hope Mr Abbott and Mr Hockey enjoy the ride.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

No ‘taper’ to central bank’s support of US economy. Fed requires ‘more evidence that progress will be sustained’. Markets cheer the announcement while the US dollar falls. The Fed’s decision underlines the fragility of US recovery…

 


Powered by Guardian.co.ukThis article titled “Ben Bernanke: no change in Federal Reserve’s stimulus – live” was written by Tom McCarthy in New York, for theguardian.com on Wednesday 18th September 2013 21.15 UTC

Summary

We’re going to wrap up our live blog coverage. Here’s a summary of where things stand:

• The Federal Reserve announced no change to its program of monthly asset purchases designed to stimulate the economy. The central bank will continue to buy mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. ”The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the central bank said in a statement.

The news sent markets through the ceiling. The Dow Jones Industrial Average, which had been concerned that the central bank would take the economy off life support, hit an all-time high on the announcement.

• However the decision to maintain the stimulus pointed to a diagnosis on the part of the Fed of sustained, underlying economic weakness. In June, Fed chairman Ben Bernanke said the central bank may begin tapering its asset purchases. There was no sign of such talk today, three months later.

• Bernanke said that unemployment was lower but not low enough (the Fed has set a 6.5% benchmark) and growth is up but not far enough. Bernanke said the current unemployment rate of 7.3% “understates the amount of true unemployment in the economy” because of the job markets cycle and demographic trends.

• The news floored analysts and reporters, who reminded Bernanke that as recently as June he was talking about “tapering” quantitative easing. “I don’t recall stating that we would do any particular thing in this meeting,” he replied.

• Bernanke said the economy continued to show signs of recovery, and sectors closest to the QE program – housing and autos – showed some of the best improvement. “There has been a lot of progress,” he said. “Labor market indicators are much better today than they were when we began… more than a year ago.”

• Bernanke warned of the potential “very serious consequences for financial markets and the economy” if the country defaults on debt or if the federal government has to shut down due to a congressional failure to reach a budget deal.

• Bernanke dismissed the idea that quantitative easing is turning, against the central bank’s will, into a very long-term policy. He said easing would last until there’s “substantial improvement” in the outlook of the labor market. At the moment there’s some improvement, he said, but “ultimately we will reach that level of substantial improvement.”

Updated

Bernanke is done. The news conference has ended. For the time being, he’s not going anywhere.

Pushing back against the impression that Fed policy helps the affluent most, Bernanke says the Fed is working to help the middle class by seeking to strengthen the jobs market and ensuring price stability.

He acknowledges that the rich are getting richer and the poor are getting poorer. Then he says the Fed can’t do much about that:

Our economy is becoming more unequal. The very rich people and the people in the lower half who are not doing well.

This has been going on for decades…. It’s important to address these trends, but the Federal Reserve doesn’t really have the tools to address these long-run… trends.

Bernanke says there are signs quantitative easing is working: 

It’s difficult to get a precise measure. There’s a large academic literature.. . my own assessment is that it has been effective… some of the leading sectors like housing and autos” are tied most directly to asset purchases.

There has been a lot of progress. Labor market indicators are much better today than they were when we began… more than a year ago.

Bernanke addresses the question raised by my colleague Dominic Rushe earlier. If the economy continuously fails to meet the benchmarks the Fed has laid out for ending asset purchases, how will it ever get out of QE?”

“The criterion for ending purchases is a substantial improvement in the outlook for the labor market,” Bernanke says. He says there has been some improvement and “ultimately we will reach that level of substantial improvement.”

Then easing can end.

A potential failure next month in Congress to raise the debt limit or pass a budget is “obviously part of a very complicated set of legislative decisions, strategies, battles” that Bernanke won’t comment on.

But he says “a government shutdown and failure to raise the debt limit could have very serious consequences for financial markets and the economy.”

Bernanke says the central bank tries to take into account such potential threats, but the Fed is relatively powerless in this field.

Is the Fed concerned about confusing investors by mentioning tapering and then not doing it?

I don’t recall stating that we would do any particular thing in this meeting. What we are going to do is the right thing for the economy, Bernanke says… We try our best to communicate.. We can’t let market expectations dictate our policy actions.

The markets really like it. 

0-2: At the start of the blog we speculated that Bernanke might simultaneously announce that he’s winding down QE and winding down his career as Fed chairman. In fact he has done neither.

Bernanke is asked whether he’s leaving:

“I prefer not to talk about my plans at this point.”

Could tapering begin by the end of 2013? Bernanke says there’s no fixed schedule:

There really is no fixed calendar… If the data confirm our basic outlook… then we could move later this year. But even if we do that, the subsequent steps will [rely] on continued progress in the economy.

The criteria include an improved labor market including lower unemployment.

Bernanke is asked whether he was speaking out of turn in June, when he said the fed could start tapering its stimulus program. Was it a mistake to talk about tapering back in June?

I think there’s no alternative … but to communicate as clearly as possible. As of June we had made meaningful progress in terms of labor [market],” Bernanke says. He says green shoots in the jobs market convinced the committee that it was the time to start talking tapering.

The question: what changed, to make the talk stop?

Updated

Bernanke says low job market participation is partly cyclical:

“There’s a cyclical proponent to participation. The unemployment rate understates the amount of true unemployment in the economy.”

“There’s also a downward trend in participation in our economy,” Bernanke says, but he pins the trend on external factors including an aging population.

The focus of course is on the Fed’s decision to leave its asset purchase program unchanged but a relevant question is “why.” “It seems as though there are two major reasons for the decision,“ Guardian business correspondent Dominic Rushe (@dominicru) writes:

1. The rise in mortgage rates is contributing to a tightening of financial conditions, which the Fed is obviously worried about.

2. The Fed inserted a new sentence that begins with “taking into account the extent of federal fiscal retrenchment.” The Fed has long been worried about their fiscal brethren and that worry crept further into today’s statement.

Even though the Fed acknowledges that things have picked up since they began QE3 late last year, they “decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

This is not what we expected. However it is, from the Fed’s point of view, understandable.

But there’s a rather unsettling conclusion to Dominic’s analysis:

However, if the tightening of financial conditions, which was partially a result of the Fed’s decision to discuss slowing asset purchases, is enough to forestall an actual reduction, then in theory the Fed can never cease purchasing assets unless there is no adverse reaction in asset markets. It becomes a negative cycle in which the Fed would find itself trapped.

Guardian finance and economics editor Heidi Moore (@moorehn) is performing Bernanke-to-English tranlsation:

Bernanke says there are signs the economy is improving.

He says that unemployment is falling [Editor: if only by 1.8% over the last two years]; 2.3m private sector jobs have been created; aggregate hours of work are up; and weekly unemployment claims are falling. ”

All this “despite substantial fiscal headwinds,” Bernanke says.

Bernanke is discussing the FOMC projections for interest rates, unemployment and inflation.

He says the collective projections of the committee members have rates moving from 2.0-2.3% in 2012 to 2.5-3.3% in 2016.

Unemployment is expected to move from 7.1-7.3% in 2013 to 5.4-5.9% by 2016, “about the long-run normal level.”

Inflation is projected to move from 1.1-1.2% in 2013 to 1.7-2.0% in 2016.

Updated

Bernanke is speaking. Watch live on CSPAN here.

Anything to instill confidence?

Updated

If the Fed keeps buying long-term government debt – and the board of governors just announced that that will continue to the tune of $45bn per month – return to investors on that debt will not be as strong. Also see this chart:

Bloomberg columnist Caroline Baum posed this question for Bernanke in the event that the Fed decided to maintain its stimulus program, which it now has: Why?

Various Fed studies suggest that the third round of asset purchases has had a negligible effect on long-term interest rates, that the real benefit comes from forward guidance. Why, then, have you decided to stick with the program? Ten-year yields are up 120 basis points since May. Any bang for the buck seems to have dissipated.

Read Baum’s Ten Burning Questions for Ben Bernanke here.

Fed chair Ben Bernanke is scheduled to meet the press in about 10 minutes. He’s likely to face sharp questions about why the Fed has decided to stick with a policy, quantitative easing, that seems to have born little fruit over three rounds and almost five year.

Guardian finance and economics editor Heidi Moore (@moorehn) sees the move as a symptom of how dire the economic situation is. Easing isn’t working – but there isn’t a plan B.

Try, try again. And again. And

What just happened? You can read the full Fed board of governors statement on the decision that has emerged from the two-day meeting of the open markets committee here.

In short the central bankers did not judge the economy to have hit benchmarks that would have dictated a change in stimulus policy – in this case slowing the purchase of mortgage-backed securities, Treasury bills and bank debt.

At a deeper level, the Fed self-evidently retains belief in these levers to move the economy. The tools still work, this decision says, and the Fed intends to keep applying them.

Here’s the key graph from the Fed statement, with this key sentence: ”the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

Read the full Fed statement here.

The markets like it.

Updated

Guardian business correspondent Dominic Rushe has some early details of the Fed announcement that it has no immediate plans to phase out or “taper” its $85bn-monthly asset purchase program.

The Fed says it is waiting for “more evidence that progress will be sustained before adjusting,” Dominic reports.

Reactions

No taper. More to come. 

And …

All the major US stock markets are trading slightly lower ahead of Fed announcement, GuardianUS business correspondent Dominic Rushe (@dominicru) reports:

 The S&P 500 is down 0.11% and the Dow 0.26%. Blame nerves. As until the announcement comes this afternoon, no one outside the Fed really knows whether Bernanke is going to start the “tapering” the $85bn a month quantitative easing stimulus programme or not.

That shoe took a long time to drop. President Obama is prepared to name Federal Reserve vice chairman Janet Yellen as the next chairwoman of the Federal Reserve, the Washington Post reports, citing a White House official and “people close to the White House”:

Federal Reserve Vice Chairman Janet Yellen is the leading candidate to be President Obama’s nominee to lead the Fed as chairman, a White House official said Wednesday. Barring any unexpected development, that likely means that Yellen will get the nomination, perhaps as soon as next week.

People close to the White House said this week that Yellen was the front-runner after the unexpected withdrawal by former White House economic adviser Lawrence Summers, who was facing sharp resistance on Capitol Hill.

Full piece here. Summers’ withdrawal did not leave Yellen the lone horse in the race, however. Wonkblog’s Neil Irwin today handicapped a competition between Yellen and Donald L. Kohn, her predecessor as Fed vice chairman. Irwin concluded it could go either way on the merits, but Yellen may be the more politically expedient choice:

The president has a choice between two very qualified, experienced central bankers for the job, with the differences between them more subtle variations in style and temperament than any vast chasm in monetary policy views. Against that backdrop, if he passes over Yellen, who would be the first woman in the job and has been endorsed by Wall Street economists and many in Congress, he’ll face tough questions on why.

Read the full piece here.

“After three years of money-pumping, quantitative easing is evidently doing nothing to bring the country to full employment, which is one of the two tasks the Fed exists to perform,” Guardian finance and economics editor Heidi Moore (@moorehn) wrote at the start of this month. That’s one reason “it’s worth examining whether QE has outlived its usefulness”:

The hard news is this: it’s a smart idea for the Fed to taper, to start opening the door for the end of stimulus. It’s not a smart idea because the economy is healthy – it isn’t – but because the economy needs to come off life-support and breathe for itself.

Quantitative easing is a drug that seems to be long past its due date. After three years, the returns are in: there are likely no more benefits coming to the economy from holding down interest rates and buying up mortgage bonds.

The economy isn’t recovering, Heidi writes; it’s “in some kind of unresponsive fugue state that we’ve arbitrarily chosen to call a ‘recovery.‘” Read the full analysis here.

Good midday and welcome to our live blog coverage of Ben Bernanke’s eagerly awaited remarks on two topics he uniquely owns: quantitative easing and Ben Bernanke. There’s a chance the Fed chair will use his press conference this afternoon to show them both the Out door.

There’s money on the line. Markets will be listening for signals that the Federal Reserve bank plans to wind down its $85bn in monthly asset purchases known as quantitative easing. For nearly five years the stimulus program has helped markets find confidence in a discouraging landscape. Bernanke has signaled that it won’t last forever. But it was supposed to last until the economy – and specifically the unemployment rate – improved. Or until rising interest rates grew too worrisome.

Neither has happened. The landscape remains discouraging, with unemployment at 7.3% and job market participation at an all-time low. Inflation has yet to rise to the 2% target Bernanke has proposed (he calls it the “objective” rate).

Clearly, easing isn’t working. Unless it is, and the numbers would be even more terrible without it. For two days the fed’s open markets committee (FOMC) has been discussing this and other questions. This afternoon Bernanke is expected to indicate what the group decided.

Additionally Bernanke may talk about his own plans to step down as Fed chair, a seat he’s occupied since President George W Bush appointed him in 2006. The conclusion that Bernanke will leave when his current term expires at the end of January is so foregone that the secret struggle to replace him already has produced public losers.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

In the trading room today: Is Tapering Tightening and what does it Mean for the USD? As the two-day Federal Open Markets Committee meeting gets underway, we explain why the Fed’s tapering will be the first step towards monetary policy tightening and explore its implications for the future trend direction of the USD against other currency majors, we analyze the move close to an important resistance area in the EUR/USD currency pair, we keep an eye on the rally of the GBP vs USD, we note the pullback in the USD/JPY pair, we highlight the market’s reaction to the German ZEW Economic Sentiment Index and the U.K. CPI, we discuss new forecasts from Deutsche Bank, BlackRock and Bank of America, and prepare for the trading session ahead.