rate hike Posts on Forex Blog
Vol a til i ty
Jul 2, 2008
Volatility - tending to fluctuate sharply and regularly.
And that is just what we can expect tomorrow around 5:30am. To make things more exciting, several events throughout the day could could cause reversal.
5:30am est - Europe
European Central Bank President Trichet will likely hold his monthly press conference shortly before or after 5:30am. Markets have already priced in a 25bps hike from the ECB. This event is likely to go 1 of 3 ways
1. ECB raises 25bps, Trichet leaves door open for hikes at the end of the year
2. ECB raises 25bps, Trichet hints at another hike soon, but discounts the notion of a series of hikes
3. ECB raises rates 50bps on expectations of an energy / fx market intervention at the G8 summit July 7 - 9
A host of pressures are certainly on Trichet's shoulders - German unemployment is at a 14 year low, Italian wages are growing, and Slovakian integration on the horizon - the pressure is on..
5:30am est - US
US releases 7 reports - chiefly Non Farm Payrolls (NFP), the unemployment rate, change in manufacturing payrolls, and hourly earnings.
Non Farm payroll Report
ADP, the largest US payroll processor, released a sharply lower number of -79k today. This was vs estimates of -20k. And, they revised May numbers down to +25k from +40k.
While the ADP can be grossly inaccurate, the numbers are backed up the drop in ISM manufacturing released yesterday. According to the ISM, the manufacturing employment reading came in at 43.7. That is the lowest level since May 2003, when the reading came in at 42.4.
With this series of bad numbers, it is unlikely that the NFP comes in near market expectations of -55k. I am now looking for a reading closer to -90k.
Last month, the NFP came beat expectations, but the unemployment rate jumped to 5.5%, sending the Greenback down. It is hard to tell where this number will come in, but I again expect it to be to the downside at 5.7%.
10am - US
The ISM will release their service sector report. While this won't save the Dollar if it has been slammed all morning, it will offer traders to rationalize some consolidation if the EURUSD has skyrocketed.
11am - US
Markets close for holiday.
The best pair to trade tomorrow will likely be the EURJPY.
The muddle of US and ECB data can prove to be too confusing. And while the USDJPY is poised for some upside potential technically, a negative jobs report will undo any of the short term momentum.
The EURJPY on the other hand, while likely be focused strictly on the ECB rate hike.
ECB, jobs report, EUR, Trichet, rate hike, USD
ECB: Really One and Done?
Jun 30, 2008
The European Central Bank meets Thursday, July 3rd. For the past month, bank members have been hammering home the point they will raise rates 25bps at this meeting.
But the real pricing action from the meeting will be the commentary. With inflation spreading like wildfire across the globe, can the ECB really be one and done?
On the one hand, it seems very unlikely. Today's CPI came in at 4% (vs 3.9% expected), double their mandated target rate of 2%. And while the German economy has definitely seen growing signs of a slowdown, the data remains mixed across the Eurozone.
French consumer spending remains resilient, coming in at 3.1% YoY. Indeed, French GDP remains inline with expectations, coming in at a steady 2%. Wage growth remains strong in Italy, coming in at a better than expected 3.3%. And that wage growth may be the biggest problem of all for Trichet and the ECB. After all, Trichet has cited a fear of spiraling wage inflation as a reason for this month's presumed 25bps hike.
On the other hand, their is growing pressure for ECB policy change. French President Sarkozy suggested the Euro is 30% overvalued against the dollar. He wisely pointed out that such over-valuation makes it tough for Airbus to compete with Boeing. President Sarkozy's comments echo that of his finance minister, Christine Lagarde. Both have suggested that growth, and not inflation alone, should be a considered in rate hikes.
But the Atlanticist French may be singular in their views.
I'm not suggesting the Europeans will raise rates when they next meet (August 7). But the idea that commodity driven inflation will come down from 1 ECB rate hike is...silly. The Eurozone economy will not come to a screeching halt July 4 and thus offer price relief.
Perhaps the typical post Olympics bust will cool China's appetite a bit, but their GDP is still forecast for 10.3% growth this year. They have plenty of reconstruction needed in the wake of the Sichuan earthquake.
And, political tensions across the Middle East and Africa seem unlikely to ease. Indeed, former UN Ambassador John Bolton has suggested Israel will strike Iran after the US election.
Barring an FX market intervention from the G8 (they meet in full July 7-9), the ECB may have little choice but to resume a rate hiking agenda later this year.
ECB, European Central Bank, inflation, Trichet, rate hike
Forex Events for June 29 - July 5
Jun 29, 2008
This could be the week the Euro breaks 1.60. A score of data out of Europe, the Thursday's rate decision, and US Non Farm Payrolls could give it the final push.
A list of the forex events likely to move markets this week.
All times listed in eastern standard time.
MoM = month over month
YoY = Year over Year
Monday June 30
4am Eurozone May PPI (expect 0.9% MoM, 6.8% YoY)
4:30am Great Britain May Mortgage Approvals (expect 51k)
5am June Eurozone CPI (expect 3.9% YoY)
5am Italy CPI
Tuesday July 1
12:30am RBA Rate Decision (expect hold w/hawkish statement)
10am US June ISM (expect 49.0)
Wednesday July 2
9:30pm Australian Trade Balance (expect -950 million)
Thursday July 3
1:45am Swiss CPI (expect 0.3% MoM, 3.1% YoY)
7am Bank of England Rates Decision (expect hold)
7:45am ECB Rates Decision (expect 25bps hike, watch commentary)
8:30am US June Non Farm Payrolls (expect -55k)
Friday
US markets closed for holiday
ECB, Euro, interest rates, trade balance, jobs report, RBA, rate hike, upcoming reports
Make No Mistake, ECB is Hiking 25bps
Jun 23, 2008
He raises rates. He raises not. He raises rates...
The double negative that hit the Euro this morning has fx traders changing their minds like a school yard kid debating their latest crush.
Make no mistake, the ECB is going to raise rates by 25bps July 3rd.
Why?
1. Trichet will not risk the credibility of the ECB.
2. ECB Governing Council member Nout Wellink said it himself last week. Traders are focusing on every little detail and ignoring midterm trends.
3. Euro-zone CPI comes out June 30. It is unlikely that number will dip month-over-month or year-over-year. With that report only 3 days before the ECB meeting, focus will remain on inflation.
4. Quietly, economists are fearing a housing crisis that spreads across the Eurozone. The ECB needs room to act should such an event occur.
While I am on this subject. I want to remind Forex traders, do NOT underestimate the FOMC! With Q1 GDP likely to be revised up to 1.2% on Thursday (from an original 0.6% and revised 0.9%), the Fed has plenty of room to act hawkish.
ECB, CPI, Trichet, rate hike, FOMC
ECB Shocks Forex Markets, Hints at Rates Increase
Jun 5, 2008
Continuing a week of market moving central bank comments, ECB President Trichet indicated the European bank may raise rates 25bps next month.
While he avoided using the word 'vigilant', Trichet stated that in the "next meeting we do not exclude to raise rates...I don't say it's certain, I say it's possible" Eurozone inflation is running at 3.6%, far above the target 2%, and just below their current 4% interest rate. The ECB may also be dealing with the reality of oil demonstrations spreading across Europe the last 3 weeks.
The ECB also narrowed 2008 GDP growth to a range of 1.5% - 2.1%. Previously, the low end was at 1.3%.
Amazingly, the hint of a rate hike came soon after a new report indicating a German slowdown. Factory orders in Germany fell -1.8% vs 0.5% projected.
The EURUSD tested the $1.56 level (up nearly 200 points) on Trichet's comments.
ECB, European Central Bank, Trichet, rate hike
Euro, Swiss Franc, and Pound Move on Latest News
May 21, 2008
The latest round of news from Europe was generally positive for their major currencies.
First, on the heels of the ZEW President Franz's prediction of an ECB rate hike, the IFO business confidence survey was up in 3 categories - business climate, expectations, and current assessment. With that extra kick of good news, the Euro crossed the 1.570 mark, and is at 1.5768 in late trading. Having broken the $1.53 - $1.56 range, the Euro is almost defintely going to test the $1.60 level.
The Swiss also posted their share of good news, with a drop in unemployment. FX traders frequently turn to the Swiss franc when exiting carry trades, the continued global stock sell off may have been a more important macro driver today.
The minutes from the Bank of England showed that only one of nine members voted for a 25 bp rate cut on may 8. With March inflation at 0.8% and annual numbers hovering around 3%, the BOE seems to be handcuffed to a policy of rate cut aversion. However, it should be noted, that Ernst and Young Item Club member Peter Spencer has warned that inflation targeting may cripple consumers. Mr. Spencer suggests that the BOE switch to a core number that excludes energy and food (similar to the US). The Pound is at $1.9707 and may soon $2.00 again.
Bank of England, BOE, jobs report, Franc, EUR, minutes, rate hike
Fed Glum, But Hey, No More Rate Cuts
May 21, 2008
In a mixed bout of pessimism with silver linings, the Fed indicated that growth will be worse than originally forecast, but rates are unlikely to be cut again.
The Fed now believes unemployment will be worse than expected, and that housing is unlikely to recover anytime soon. Overall, the Fed cut annual growth to 0.3% - 1.2% (from 1.3% - 2%).
At the same time, the Fed also joined team Trichet in warning of inflation. They indicated the April 25 bp cut was a "close call". Since September, the Fed has cut rates 325 bp to reach the current 2% level. Futures markets are pricing in a 90% chance the Fed keeps rates at 2% in June.
Tomorrow, will have 3 key US government reports by 10:30am est. Weekly jobless claims will be first at 8:30am, OFHEO home price data at 10am, and finally natural gas at 10:30am.
Read more at CNBC
rate cut, Trichet, rate hike, Fed
