The currency markets, and financial markets in general, are being driven by the prospect of central bank and government stimulus rather than economic data. There are a number of central banks planning to ease conditions over the following months and this is keeping FX traders & dealers on their toes.
Firstly, the ECB is preparing another stimulus package. This will largely consist of an interest cut (most likely into negative territory for the first time ever within the Eurozone) as well as a new bond buying program to lower the cost of borrowing and incentivise banks to continue lending. This package should keep the euro on the back foot over coming months unless the central bank significantly miss expectation on the size of the package. However, judging by recent commentary they don’t look likely to let the market down.
Secondly, both the US and China are planning to provide stimulus. No doubt the Fed will offer some new accommodation to the market as we approach the final quarter of 2019. In addition, Trump is planning a new form of fiscal stimulus again. If both of these were to arrive stock markets would certainly cheer but the US dollar’s reaction would be uncertain as lower rates are clearly worse and fiscal adjustments come at the expense of the huge deficit the US currently run. Over in China, the People’s Bank of China are currently launching a package to reduce the costs for businesses to borrow.
We’re in the final stretch of an already stimulus-induced lengthy business cycle, it appears governments and central banks want a final go at prolonging the inevitable…
Written by Viv Savani. 8:40am, August 20th 2019
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9:59am, September 9th 2019
Heavy week for economic data and events, volatility guaranteed…