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GBP/USD slides 1%, as Carney sends strong hints of upcoming rate cuts
GBP/USD pared some losses after re-testing 31-year lows on Thursday, as Bank of England governor Mark Carney sent strong hints that the Bank of England could ease monetary policy later this summer to help prevent irreparable harm to the British economy in the wake of last week's Brexit decision.
The currency pair stood at 1.3289 at the close of U.S. afternoon trading, down 0.0164 or 1.02% on the session. Since eclipsing 1.50 in the final hours of Brexit polling last Thursday, the British Pound has crashed more than 10% against the U.S. Dollar. In Monday's session, the Pound Sterling crashed to an intraday low of 1.3126 against the greenback, its lowest level since September, 1985.
GBP/USD traded in a broad range on Thursday between 1.3207 and 1.3496.
Delivering his second public address since last week's shocking Brexit outcome, Carney emphasized that the BOE could lower interest rates in the coming months to safeguard the economy from further shocks emanating from last week's Brexit vote. The BOE has left interest rates steady since 2012 and held its benchmark interest rate at a record-low of 0.5% in every meeting dating back to 2009. While the BOE meets next in July, Carney hinted that the central bank could wait until August to loosen policy.
"It now seems plausible that uncertainty could remain elevated for some time,” Carney said. "The economic outlook has deteriorated and some monetary policy easing will likely be needed over the summer."
Notably, Carney said at Thursday's press conference that the Bank of England has not needed to intervene in global foreign exchange markets buy purchasing large quantities of the Pound in order to prevent further losses.
"There were some pretty big moves in the currency, that was to be expected, given the scale of the change," Carney said. "Those markets functioned very well, the markets were liquid, there were huge volumes. While the currency was moving it wasn't moving because of market technicals, it was moving because of opinions from investors as new information came. The market was functioning and when the market is function you don't want to get in the way."
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Bundesbank head Jens Weidmann - Brexit is no excuse to loosen EU budget rules
Jens Weidmann, head of Germany's central bank (the Bundesbank) says "The Brexit vote is no reason to loosen budget rules"
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How Long Must The Fed Be 'On Ice' Post-Brexit?
What should U.S. monetary policy be in the wake of the June 23rd British referendum in which a majority voted to have the UK leave the European Union? We believe that this development places the Fed on a more gradual tightening path than we earlier anticipated but not frozen indefinitely at the current 3/8% federal funds rate.
Specifically, instead of our earlier expected two 25 basis point fed funds rate hikes in 2016, we now expect only one such move to occur at the December 13-14 Federal Open Market Committee (FOMC) meeting.
In addition, for 2017 we now anticipate two instead of four 25 basis point tightening moves.
Moody's: Short-lived political uncertainty has limited credit implications for Australia
Moody's with remarks crossing the wires on Australia;
Full statement from the RBA and what has changed since June
The full statement from the RBA and comparison to June's
5 July 2016
At its meeting today, the Board decided to leave the cash rate unchanged at 1.75 per cent.
The global economy is continuing to grow, at a lower than average pace. Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies. China's growth rate has moderated further, though recent actions by Chinese policymakers are supporting the near-term outlook.
Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years. Australia's terms of trade remain much lower than they had been in recent years.
Financial markets have been volatile recently as investors have re-priced assets after the UK referendum. But most markets have continued to function effectively. Funding costs for high-quality borrowers remain low and, globally, monetary policy remains remarkably accommodative. Any effects of the referendum outcome on global economic activity remain to be seen and, outside the effects on the UK economy itself, may be hard to discern.
In Australia, recent data suggest overall growth is continuing, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators have been more mixed of late, but are consistent with a modest pace of expansion in employment in the near term.
Inflation has been quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.
Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 is helping the traded sector. Financial institutions are in a position to lend and credit growth has been moderate. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.
Indications are that the effects of supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. Dwelling prices have risen again in many parts of the country over recent months. But considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities.
Taking account of the available information, the Board judged that holding monetary policy steady would be prudent at this meeting. Over the period ahead, further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate.
Gross Says Fed Won’t Raise Rate Based on Strong Jobs Report
June’s strong job report probably won’t change the Federal Reserve’s decision on when to raise interest rates, said Bill Gross of Janus Capital Group Inc.
“I think the Fed stays where it is,” said Gross in an interview Friday on Bloomberg Television.
The Fed left interest rates on hold last month as heightened uncertainties about the U.S. labor market and financial stability threatened their outlook, according to minutes of their meeting the week before the U.K. voted on June 23 to leave the European Union. While the economy added a better-than-expected 287,000 jobs in June, over the past three months the increase amounted to about 150,000 per month, said Gross.
“Things aren’t as hunky-dory as the 287,000 suggests,” he said. “There is nothing to get excited about.”
The S&P 500 Index and yields on short-term U.S. government bonds rose after the payrolls report on Friday. Job growth in June exceeded the highest estimate in a Bloomberg survey, after a revised 11,000 gain in May, a Labor Department report showed Friday. In April the economy added 144,000 jobs.
Futures markets indicate there is less than a 10 percent chance the central bank will raise short-term interest rates in July, September and November, and only a 22 percent chance that the Fed will boost rates in November, according to data compiled by Bloomberg.
Gross, who manages the Janus Global Unconstrained Bond Fund, said that in the current low-interest rate environment, high-yield bonds are “artificially priced” and at risk under certain circumstances.
“I wouldn’t buy them,” he said. “In fact, I am shorting them.”
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Jobs Number to Reassure Fed 2016 Rate Hike Is Still Possible
A solid rebound in the U.S. labor market in June following a dismal May will ease worries at the Federal Reserve about the underlying health of the U.S. economy and keep officials open to raising interest rates this year.
“The Fed will breathe a bit of a sigh of relief,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “This is going to give them a little bit of comfort, and my guess is they’ll repeat that, if their forecast plays out, they’ll move this year.”
The May jobs report appeared to spook the central bank and convinced investors the Fed would keep rates on hold all year, a sentiment reinforced by the U.K.’s vote on June 23 to exit the European Union, which increased concerns over the outlook for global growth.
Though most Fed officials have continued to signal a desire to raise rates at least once in 2016, minutes from the Fed’s June 14-15 meeting, released on Wednesday, showed the Federal Open Market Committee “generally agreed” they needed to see more data before contemplating another hike.
The Labor Department reported employers added 287,000 workers in June, driven in part by stronger hiring by restaurants, retailers, and health-care providers. May job growth was revised down, to 11,000 from 38,000. The number of people working part time in June who would have preferred full-time employment plunged to the lowest level since October, helping to unwind the negative news from May.
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Fed's George says U.S. interest rates are currently too low
The Federal Reserve currently is keeping U.S. interest rates too low given the progress that has been made in the U.S. economy, Kansas City Fed President Esther George said on Monday.
"Keeping rates too low can create risks," George told a management conference in Lake Ozark, Missouri.
Fed releases discount rate meetings
Notes from Regional Fed Directors
The report is not a market moving and we are seeing the same with this one....
Beige Book Reveals Modest Pace of US Economy and Positive Outlook
The Federal Reserve (Fed) issued its so-called Beige Book on Wednesday afternoon, pointing to the US economy rising at a modest pace in most of its twelve districts.
According to the fresh release, the majority of regions in the US performed modestly in the period from mid-May to the end of June. Labor market conditions stayed almost the same as employment modestly grew, while Fed officials mentioned that wage pressures in the US shifted from modest to moderate.
On the downside, Boston and Atlanta warned about certain issues in hiring activities, in contrast with moderate growth booked in the New York area.
Looking at manufacturing employment, the release unveiled stagnant situations in Boston and Cleveland, while Philadelphia and Dallas both reporting a slowdown during the observed period.
As for wages in the US, the pressure remained modest to moderate in general, while the most pressure was seen among skilled employees, the report showed. The construction industry stood out in Philadelphia, Cleveland and San Francisco Districts, where increased pressure on wages was experienced during the monitored period. In the meantime, only three districts — Cleveland, Chicago and San Francisco — reported increased wages for entry-level staff, while price pressure also stayed slight.
The Fed also mentioned that manufacturing activity was mixed, while the outlook remained positive, but lost some momentum since the previous release.