Bailey speech: Bank rate may have to go up further

 Bank of England (BoE) Governor Andrew Bailey is delivering his remarks on the policy outlook and responding to questions from the press following the bank's decision to hike the policy rate by 75 basis points to 3%.

Key takeaways

"If we do not act forcefully now, it will be tougher later."

"Bank rate may have to go up further."

"We think bank rate will have to up by less than priced in markets."

"We are increasing bank rate because inflation is too high."

"Low and stable inflation is the bedrock of a stable economy."

About Andrew Bailey (via bankofengland.co.uk)

"Andrew Bailey previously held the role of Deputy Governor, Prudential Regulation and CEO of the PRA from 1 April 2013. While retaining his role as Executive Director of the Bank, Andrew joined the Financial Services Authority in April 2011 as Deputy Head of the Prudential Business Unit and Director of UK Banks and Building Societies. In July 2012, Andrew became Managing Director of the Prudential Business Unit, with responsibility for the prudential supervision of banks, investment banks and insurance companies. Andrew was appointed as a voting member of the interim Financial Policy Committee at its June 2012 meeting."

Malaysia: BNM could pause its hiking cycle in November – UOB

 Bank Negara Malaysia (BNM) could make an impasse in its tightening cycle at the November 3 event, suggests Lee Sue Ann, an Economist at UOB Group.

Key Quotes

“Given that inflation expectations are anchored to official targets and risks to the domestic growth outlook are tilting to the downside, we believe BNM will tread more cautiously”.

“We expect BNM to take an intermittent pause to assess the effect of its cumulative 75bps rate hikes to date, domestic policy outcomes, as well as higher external risks and weaker global outlook. As such, we expect the OPR to be left unchanged at 2.50% at the coming Nov meeting”.

USD/IDR to grind higher toward next resistance at 15,832 – TDS

 Bank Indonesia (BI) hiked rates by 50 bps as expected. Nonetheless, economists at TD Securities expect the USD/IDR to advance nicely toward the 15,832 resistance.

Another 50 bps hike cannot be discounted if IDR weakens aggressively

“BI hiked by another 50 bps, bringing the 7-day reverse repo rate to 4.75%. BI Governor Warjiyo noted that the hike was a ‘front-loaded, pre-emptive and forward-looking step to lower inflation expectations that are too high or overshooting’. However, we think the policy path ahead leans more on the pace of IDR depreciation given BI's historical focus on FX. Further, Warjiyo commented that the Bank wants to control the IDR to prevent imported inflation.”

“We see a gradual move for USD/IDR higher towards its next technical resistance level at 15,832 (76.4% Fib level over 5 yr-window).” 

“BI likely won't tolerate any sharp one-sided moves in IDR and another 50 bps hike cannot be discounted if IDR weakens aggressively against the USD and compared to its regional peers.”

Gold Price Forecast: XAU/USD to come under pressure if real rates remain elevated – SocGen

 Gold has resisted higher real rates, strong dollar and fund outflows, but remains vulnerable, in the view of strategists at Société Générale.

Gold has outperformed treasuries and TIPS so far this year

“In the past, we have observed that gold seems to correlate well with three factors – US real rates, the dollar and ETF flows (regression r-squared of almost 95%). However, the price of gold has remained quite elevated compared to the theoretical value yielded by our models.”

“If real rates remain elevated for the foreseeable future, one of the assets that could come under pressure is gold.”

“Gold has outperformed treasuries and TIPS so far this year, but may not be able to resist the high yield for much longer if there is no pivot in the near-term from the Fed.”

South Korea: BoK raised rates by 50 bps – UOB

 Economist at UOB Group Ho Woei Chen, CFA, comments on the latest interest rate decision by the Bank of Korea (BoK).

Key Takeaways

“Bank of Korea (BoK) ratcheted up its benchmark base rate by an outsized 50bps to 3.00% in Oct. This was the second time that the central bank had hiked by a 50bps pace following a similar move in Jul. The strengthened policy move was in response to the high inflation as well as sharp depreciation in the won which was seen adding more inflationary pressure through higher imported prices.”

“Despite opting for a larger 50bps hike, BoK’s tone was evidently more downbeat as Governor Rhee Chang-yong flagged weaker growth outlook for the global and South Korean economies.”

S&P 500 Index: Next potential supports at 3500/3460 – SocGen

 S&P 500 has resumed its downtrend. Analysts at Société Générale note that the technical outlook denotes prevalence in downward momentum.

Failure to reclaim 3900 can lead to continuation in decline

“Monthly RSI is now close to the lower limit of its bullish territory (near 40 levels); this band has cushioned the declines since 2010. However, signals of a trend reversal are still not visible in price action.”

“Short-term resistance is located at 3860/3900, the 38.2% retracement from August. Failure to reclaim 3900 can lead to continuation in decline.” 

“Next potential supports are at projections of 3500/3460 and February 2020 levels of 3393.”

Silver Price Analysis: XAG/USD maintains a large top, further downside ahead – Credit Suisse

 Silver maintains the top analysts at Credit Suisse have been highlighting since mid-May. Therefore, XAG/USD is expected to decline towards the $15.56 support.

Break above $21.39 remains needed to negate the top

“Silver has risen back above the crucial 61.8% retracement support of the whole 2020/21 upmove at $18.65/15, however, still maintains a large top below $21.39 and we hence expect further downside from here towards the $15.56 support from a technical analysis perspective.”

“Next resistance is seen at $20.87 and above $21.39 remains needed to negate the top.”

BOE’s Pill: All inflation forecasts are dependent on very volatile gas prices

 

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Bank of England (BOE) Chief Economist Huw Pill is testifying on the bank’s Monetary Policy Report (MPR) before Parliament's Treasury Committee on Wednesday.

Also read: Bailey speech: Confident BOE will respond to price shock

Key comments

Goldman Sachs UK inflation forecasts are mechanical implication of wholesale gas markets.

Goldman Sachs forecasts illustrate how much market prices have changed since BOE prepared Aug inflation forecast.

Some of rise in gas prices has reversed since Goldman inflation forecast.

All inflation forecasts are dependent on very volatile gas prices.

Inflation forecast also depends on machinery by which wholesale gas prices translate into retail prices.

Politicians are considering transmission of wholesale gas prices to consumer.

Seems clear to me we will see changes in this area.

Inflation impact of future fiscal stimulus depends on details.

Supporting household incomes will boost demand, leading to slightly stronger inflation.

I would expect headline inflation to decline in short term.

Implication for inflation at monetary policy relevant horizon is unclear, given lack of detail.

Very short-term impact on government measures on inflation may not be most important thing for BOE.

Must emphasise importance of BOE inflation target as anchor, not consider new regime.

We are here to ensure fiscal policy does not generate inflation.

We think output measures of GDP are better measures of activity, as less distorted by problems with trade figures.

Hopefully quality of trade data will improve over time.

UK: Liz Truss wins contest to become the next UK Prime Minister

 Liz Truss won the Conservative Party leadership race to become the next British Prime Minister.

"I will deal with long-term issues on energy supply," Liz Truss said in her acceptance speech and noted that she will deal with the crisis in households' energy bills.

Additional takeaways

"I will govern as a conservative."

"I intend to deliver what we promised voters in 2019."

"I will deliver a bold plan to cut taxes and grow our economy."

"We will deliver a great victory for the conservative party in 2024."

Market reaction

The UK's FTSE 100 Index showed no immediate reaction to these comments and was last seen losing 0.6% on a daily basis. Meanwhile, the GBP/USD pair continues to fluctuate at around 1.1500 during the European trading hours.

Iran Foreign Minister: Carefully reviewing EU-drafted text for revival of 2015 nuclear pact

 Iran's Foreign Minister Hossein Amirabdollahian said on Wednesday that Tehran is carefully reviewing the EU-drafted text for the revival of the 2015 nuclear pact, as reported by Reuters. 

"We need stronger guarantees from the other party to have a sustainable deal,"  Amirabdollahian added. "The (U.N.) agency should close its politically-motivated probes."

Market reaction

Crude oil prices showed no immediate reaction to these comments. As of writing, the barrel of West Texas Intermediate was trading at $89.10, where it was down 3.5% on a daily basis. 

USD/TRY leaps to fresh 2022 peaks past 18.00 after CBRT cut rates

 

• USD/TRY clinches new YTD tops beyond the 18.00 mark.
• The pair now targets the all-time top at 18.25 (December 20 2021).
• The Turkish central bank reduced the policy rate by 100 bps.
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The Turkish lira debilitates to fresh lows vs. the greenback and pushes USD/TRY past the 18.00 yardstick for the first time since December 2021.

USD/TRY now targets the all-time high at 18.25

USD/TRY leaves behind the key barrier at 18.00 after the Turkish central bank (CBRT) caught the markets off guard and reduced the One-Week Repo Rate by a full point to 13.00% at its meeting earlier on Thursday. the central bank also cut the Overnight Borrowing Rate and the Overnight Lending Rate by 100 bps to 11.50% and 14.50%, respectively.

In its statement, the CBRT continues to see domestic inflation largely driven by higher energy costs exclusively on the back of geopolitical events and “effects of pricing formations that are not supported by economic fundamentals”.

Dollar stuck ahead of key U.S. inflation print

 LONDON (Reuters) - The dollar lurked below recent highs on Tuesday as traders awaited this week's key U.S. inflation print for any signs that price pressures are finally abating and that the need for further aggressive U.S. interest rate hikes is easing.

Unexpectedly strong U.S. jobs data on Friday had boosted the greenback, which posted its biggest daily percentage gain since mid-June against the yen that day as investors ramped up bets on a 75 basis point (bps) rate rise in September.

But the currency has pulled back since then as focus shifted to Wednesday's July consumer price index (CPI).

The dollar index, which measures the currency's value against a basket of other peers, was marginally lower at 106.23. It held below a more than one-week peak hit on Friday at 106.93.

Sterling was little changed at around $1.2055 and the euro was 0.2% firmer at $1.0213. The dollar was also flat around 134.90 yen.

"I'm a bit concerned about inflation tomorrow. The market has been wrong-footed all year and if we get a strong core inflation print that will nail expectations for a 75 bps rate hike in September," said Kenneth Broux, a currency strategist at Societe Generale (OTC:SCGLY) in London.

"It's too soon to say it's time to short the dollar as the Fed may have to do more."

The U.S. Federal Reserve hiked rates by a hefty 75 bps in June and July. Money-market futures show traders see about a two-thirds chance of a 75 bps hike next month and have started pushing expectations for rate cuts deeper into 2023.

Economists polled by Reuters see year-on-year headline inflation at 8.7% - incredibly high, but below last month's 9.1% figure. The Fed targets inflation at 2%.

Last week's strong labour data stoked expectations of aggressive near-term hikes, pushing short-dated Treasury yields further above long-term peers.

The gap between two and 10-year Treasury yields, a reliable recession indicator, has grown to its largest in two decades. [US/]

On Monday, a New York Fed survey showed consumers' inflation expectations fell sharply in July, perhaps offering a sliver of hope that the CPI release brings relief.

"The market understandably is waiting for the numbers to then reprice, rather than moving in anticipation of them," said Ray Attrill, head of foreign exchange strategy at National Australia Bank (OTC:NABZY) in Sydney.

The dollar's haven status, though, makes the greenback's reaction a little harder to predict, especially as growth and geopolitical worries swirl.

Consumer confidence slid in Australia for a ninth straight month and the Australian and New Zealand dollars edged lower as London trade got under way.

China extended military drills near Taiwan, and the self-ruled island's foreign minister said China was using the drills launched in protest against U.S. House Speaker Nancy Pelosi's visit as an excuse to prepare for an invasion.

When is the Canadian monthly jobs report and how could it affect USD/CAD?

 

Canadian employment details overview

Statistics Canada is scheduled to publish the monthly employment details for July later this Friday at 12:30 GMT. The Canadian economy is anticipated to have added 20K jobs during the reported month, up sharply from the 43.2K decline reported in June. Meanwhile, the unemployment rate is expected to edge higher to 5.0% in July from the 4.9% previous.

Analysts at TD Securities (TDS) are more optimistic about the report and explain: “We look for job growth of 38k in July, driven by a partial rebound for trade services and natural resources after their sharp decline in June. Full-time hiring should lead the increase, while stronger labour force participation should keep unemployment stable at 4.9%. We also expect to see wage growth firm to 6.0% y/y in July, although AHE (Average Hourly Earnings) should slow on a m/m basis.”

Bailey speech: Will not comment on Conservative leadership candidates' plans

 

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Bank of England (BoE) Governor Andrew Bailey is delivering his remarks on the policy outlook and responding to questions from the press following the bank's decision to hike the policy rate by 50 basis points to 1.75%.

Key takeaways

"BOE will not comment on Conservative leadership candidates' plans."

"BOE has a very clear mandate of price stability."

"Consequences of Russia's actions in Ukraine have a serious economic impact."

"Political pressures have been very well managed since BOE independence."

"I have not abandoned the narrow path analogy for UK policy outlook."

"A number of central banks have a similar narrow path to tread."

About Andrew Bailey (via bankofengland.co.uk)

"Andrew Bailey previously held the role of Deputy Governor, Prudential Regulation and CEO of the PRA from 1 April 2013. While retaining his role as Executive Director of the Bank, Andrew joined the Financial Services Authority in April 2011 as Deputy Head of the Prudential Business Unit and Director of UK Banks and Building Societies. In July 2012, Andrew became Managing Director of the Prudential Business Unit, with responsibility for the prudential supervision of banks, investment banks and insurance companies. Andrew was appointed as a voting member of the interim Financial Policy Committee at its June 2012 meeting."

US Dollar Index Price Analysis: Further losses not ruled out

 

• DXY accelerates the corrective decline to the 105.30 zone.
• Immediate to the downside appears the 55-day SMA at 104.75.

DXY navigates the fourth consecutive session with losses and revisits the 105.30 region at the beginning of the week.

The index broke below the multi-session pre-FOMC consolidative theme and in doing so it has paved the way for extra decline in the short-term horizon. That said, the immediate support now turns up at the interim 55-day SMA at 104.75 ahead of the 5-month support line around 103.85.

The near-term outlook for DXY remains constructive while above this 5-month support line near 104.00.

In addition, the broader bullish view remains in place while above the 200-day SMA at 99.49.

Fed's Bostic: Fed is going to have to do more with interest rates

  "The Federal Reserve is going to have to do more with interest rates but details depend on the flow of data in coming months," Atlanta Fed President Raphael Bostic said on Friday, as reported by Reuters.

Additional takeaways

"The country is not in recession, but the real question is whether current conditions are creating hardship, inflation needs to be addressed."

There is still more work to be done on bringing demand and supply into balance."

"Rate hikes could hurt job growth, but so far seems there is momentum for continued hiring."

"Possible to control inflation while limiting the number of families who have really bad outcomes."

"The US is a ways from a recession, though concerned that recession fears could become self-fulfilling."

Market reaction

These comments don't seem to be having a significant impact on the greenback's performance against its rivals. As of writing, the US Dollar Index was down 0.25% on the day at 105.92.

GBP/USD strengthens beyond mid-1.2000s, hits fresh multi-week high amid weaker USD

• GBP/USD jumped to a fresh multi-week high amid the emergence of fresh USD selling.
• A positive intraday turnaround in the risk sentiment weighed on the safe-haven buck.
• Brexit woes might cap gains for the British pound ahead of the crucial FOMC decision.

The GBP/USD pair attracted some dip-buying near the 1.1960 area on Monday and shot to a nearly three-week peak during the mid-European session. The pair was last seen trading around the 1.2065-1.2070 region, up over 0.50% for the day.

Friday's better-than-expected flash UK PMI prints reaffirmed market bets for a 50 bps rate hike by the Bank of England in August and continued acting as a tailwind for the British pound. On the other hand, a positive turnaround in the global risk sentiment - as depicted by a strong intraday rally in the equity markets - weighed on the safe-haven US dollar. In fact, the USD Index languished near its lowest level since July 5 touched on Friday, which, in turn, was seen as another factor that provided a goodish lift to the GBP/USD pair.

Ukrainian Negotiator: Hard to say when next stage of direct peace talks will occur

 

Ukrainian Negotiator Mykhailo Podolyak told Reuters on Tuesday that events in Mariupol have made the negotiation process with Russia "even more complicated" and said that it is hard to say when the next direct peace talks will be possible. Russia is "seriously betting" on the second stage of its "special operation", he continued, adding that Russia aims to strengthen its negotiation position through its offensive in eastern Ukraine. 

Podolyak's remarks come after the unofficial start of the second phase of Russia's invasion of Ukraine began on Monday, with the country now focussing its attacking efforts in the east. Ukrainian officials on Monday said that Russian forces tried to break through their defenses along the Donetsk, Luhansk and Kharkiv fronts. 

Who will Help The AUSSIES As There is a Change in MAJOR and MINOR Currency Pairs

LONDON (Reuters) -The dollar dipped on Thursday as this week's rally in U.S. Treasury yields paused, while the Canadian and Australian dollars gained on the back of rising commodity prices and optimism about economic growth.

The euro and sterling rose after suffering their worst days in a month on Tuesday when the dollar was lifted by a jump in U.S. Treasury yields.

However, by 1100 GMT the initial gains had fizzled with investors cautious about the next move in government bond yields.

The European single currency was last at $1.1346, up slightly on the day and below an earlier high of $1.1369.

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The pound was 0.1% higher at $1.3622 and the yen was up marginally 114.26 per dollar.

This left the dollar index, which measures the greenback against six major peers, at 95.563, 0.1% lower on the session.

The dollar has not performed as well as expected recently, despite a dramatic rise in expectations for the U.S. Federal Reserve to begin hiking interest rates as early as March to curb soaring inflation.

U.S. benchmark 10-year note yields were at 1.8379%, off their two-year high of 1.902% reached on Wednesday.

The gains come as traders prepare for the United States to tighten monetary policy at a faster pace than previously thought. Fed funds futures have fully priced in a rate hike in March and four in all for 2022.

Elsewhere a combination of higher commodity prices and expectations for tighter policy supported the Aussie and the Loonie.

The Aussie firmed 0.4% to $0.7237, extending advances from the previous day, and the Canadian dollar was heading back towards the 10-week high it touched on Wednesday, with one U.S. dollar worth C$1.2493.

Analysts said a strong Australian labour market reading overnight also helped the Aussie.

"The latest Australian employment report...reinforced expectations that the RBA (Reserve Bank of Australia) will decide to bring an immediate end to the QE (quantitative easing) programme at their next policy meeting on 1st February," said MUFG analyst Lee Hardman.

Hardman noted that the Canadian dollar has been the best performing G10 currency in 2022, attributing that to a sharp rebound in oil prices -- which have hit seven-year highs -- and speculation the Bank of Canada will soon start to hike rates.

The Norwegian crown, another currency linked to the price of oil, fell after the central bank voted to keep interest rates on hold at 0.5% and said it was on track for a March hike. That disappointed some traders betting it would flag a faster rate of tightening.

The crown was last down 0.2% against both the euro and the dollar.

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