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September 2016

BOJ invents QQE

Published: Wednesday 21 September 2016

  • BOJ invents QQE
  • UK releases likely to strengthen GBP
  • US interest rate decision is day’s highlight 
The bank of Japan met overnight to set their monetary policy. They introduced a policy of controlling interest rates on the short and long term markets and that’s a new twist on Quantitative Easing. It was referred to as Qualitative and Quantitative Easing (QQE). They also committed to doing so until inflation exceeds their 2% target. The Yen weakened on the news but only within recent ranges.
The Reserve Bank of New Zealand will most likely announce no change to their base rate when they meet tonight. The GBPNZD exchange rate is at its lowest ever level at the moment and relatively high interest rates in NZ (2.0% is well above other industrialised countries) will continue to make the NZ Dollar attractive to overseas investors. That’s a pain in the proverbial for anyone needing to buy NZD but manna from heaven for those moving funds from NZ to the UK.
The Sterling – US Dollar rate is back down to levels not seen since 1985 and that seems likely to continue until the markets next feel the UK economy is viable outside the EU. Today’s UK government borrowing data will give a little insight here and the Bank of England’s two releases today will also add some colour to that debate.
More importantly for this pair is the interest rate decision from the US Federal Reserve, due at 19:00 GMT. Analysts are divided over whether the Fed will hike interest rates by 25 basis points today. I suspect they won’t but I think I am in the minority. I think it is too early for the cautious Fed to take decisive action. If they do, then the USD will strengthen and the Pound will be battered…along with the Euro, Yen et al.  If they go with my view (and why wouldn’t they) then the USD will undoubtedly lose some ground as traders unwind their ‘long’ USD positions. That’s all happens after UK trading hours, so an automated order to protect against or take advantage of the potential moves is your best ally in the next 24 hours.
That is about all for today but I think that is enough to be going on with really.

On Board

Two sailors were eating in the mess while the cook was bragging about his culinary skills to anyone who would listen.
"My signature dishes are Shepherd’s Pie and Peach Cobbler. I am famous for them throughout the navy.”
One of the sailors looked up and said, “Glad to hear it. Which one is this?”

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 09:30 UK: Public sector net borrowing -1.5b 10.5b
CAD 13:30 Canada: Wholesales sales m/m  0.7% 0.3%
USD 15:00 US: Crude oil inventories 3.2m -0.6m
USD 19:00 FOMC economic projections    
USD 19:00 FOMC statement    
USD 19:00 Federal funds rate 0.50% 0.50%
USD 19:30 FOMC press conference    
NZD 22:00 Official cash rate 2.00% 2.00%
NZD 22:00 RBNZ rate statement    

Daily Currency Analysis by Joe De Berniere

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