Re: USD news

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The Fed’s Esther George indicates it’s time for a pause from rate hikes

KEY POINTS:

Kansas City Fed President Esther George said the central bank likely should “pause” from rate hikes until it assesses conditions.

“A pause in the normalization process would give us time to assess if the economy is responding as expected with a slowing of growth to a pace that is sustainable over the longer run,” George said in prepared remarks for a speech in Kansas City.

Full Story:
https://www.cnbc.com/2019/01/15/the-fed ... hikes.html
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Fed Signals End of Interest Rate Increases

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Fed Signals End of Interest Rate Increases

[media]https://www.nytimes.com/video/us/100000 ... d=pl-share[/media]

WASHINGTON — The Federal Reserve kept interest rates steady on Wednesday and signaled that it may not raise them again anytime soon, a surprising reversal from last month, when the central bank indicated it expected to continue raising rates in 2019.

In a statement following a two-day meeting of its policymaking committee, the Fed said that economic growth remained “solid,” and that it expected growth to continue.

But in a sharp deviation from its stance just one month ago, the Fed did not say it expected to keep raising interest rates. Instead, the statement said the Fed would be “patient” in evaluating the health of the economy. And it indicated that the Fed stood ready either to increase or to reduce rates, depending on economic conditions.

“The case for raising rates has decreased somewhat,” Jerome H. Powell, the Fed’s chairman, said at a news conference following the release of the policy statements. He said that while “we continue to expect that the American economy will grow at a solid pace,” some signs of weakness in consumer and business sentiment, as well as a global economic slowing in places like China, is “giving reason for caution.”

“My colleagues and I have one overarching goal: To sustain the economic expansion,” he said.

Reinforcing this more cautious tone, the Fed also announced that it stood ready to slow or even reverse the steady slimming of its bond portfolio. This, too, marked a striking shift. The Fed in December said it was committed to reducing its holdings of Treasurys and mortgage bonds, which it amassed during the financial crisis to help bolster the economy, at a steady pace.

The Fed’s policymaking committee voted unanimously for the changes.

Stock markets, which were up even before the Fed decision hit at 2 p.m., climbed more after the arrival of the statement. At around 2:15 p.m., the S&P 500 was up more than 1.4 percent. Yields on shorter-term Treasury securities declined, as traders bet that future rate hikes would be pushed further out.

The Fed’s newfound caution is likely to delight President Trump, who argued loudly and publicly through much of 2018 that the Fed should stop raising its benchmark rate, which now sits in a range between 2.25 and 2.5 percent. Many liberal economists also argued for the Fed to take a break.

The unemployment rate remains low by historical standards, but inflation has been sluggish for the entirety of the last decade — and the Fed’s statement noted market-based measures of inflation expectations have weakened in recent months.

The statement also referred to the weakness of global growth and volatility in a range of financial markets.

“In light of global economic and financial developments and muted inflation pressures, the committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate,” the statement said.

Mr. Powell did not indicate how long the Fed’s “patient period” might persist and when the Fed might consider another rate adjustment. But he said that there would have to be strong signs of inflation to warrant an increase.....


Full Story:
https://www.nytimes.com/2019/01/30/us/p ... ss&emc=rss
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Re: Fed Signals End of Interest Rate Increases

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navid110 wrote: Thu Jan 31, 2019 9:18 am Mr. Powell did not indicate how long the Fed’s “patient period” might persist and when the Fed might consider another rate adjustment. But he said that there would have to be strong signs of inflation to warrant an increase.....
great reading ur articles navid thx for posting :clap:
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Fed's Dudley Explains "How I Learned To Stop Worrying & Love The Fed's Balance Sheet"

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Fed's Dudley Explains "How I Learned To Stop Worrying & Love The Fed's Balance Sheet"

(ps: In memory of "Stanley Kubrick" movie "Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb" ;) )

"Stocks have reached a permanently high plateau", "subprime is contained", "there's no icebergs this far south" and now "The Fed's balance sheet is not the threat that people seem to think it is."

Man's ability to willfully ignore 'downside possibilities' and remain cognitively dissonant far longer than logic (or their pocketbook) should allow seems to know no bound and none other than The Federal Reserve's Bill Dudley just unleashed what could be the piece de resistance of "nothing to see here, move along" agitprop.

Image


Financial types have long had a preoccupation: What will the Federal Reserve do with all the fixed income securities it purchased to help the U.S. economy recover from the last recession? The Fed’s efforts to shrink its holdings have been blamed for various ills, including December’s stock-market swoon. And any new nuance of policy — such as last week’s statement on “balance sheet normalization” — is seen as a really big deal.

I’m amazed and baffled by this. It gets much more attention than it deserves.
Let’s start with the stock market. Yes, it’s true that stock prices declined at a time when the Fed was allowing its holdings of Treasury and mortgage-backed securities to run off at a rate of up to $50 billion a month. But the balance sheet contraction had been underway for more than a year, without any modifications or mid-course corrections. Thus, this should have been fully discounted.

Moreover, if anything, the run-off of the Fed’s balance sheet had a smaller-than-expected impact on the yields of those securities. Longer-term Treasury yields remained low, and the spread between them and the yields on agency mortgage-backed securities didn’t change much. It’s hard to see how the normalization of the Fed’s balance sheet tightened financial conditions in a way that would have weighed significantly on stock prices.

Better explanations for this fall’s weakness in the equity market abound. For one, economic growth and corporate profits looked set to falter in 2019, as the effects of corporate tax cuts waned and the labor market tightened. Demand for scarce labor should increase its share of income, crimping profits. And if the economy didn’t slow enough on its own, the Fed was likely to raise interest rates to make sure that happened. These developments weren’t good for an equity market that had been accustomed to strong earnings growth and an accommodative central bank.

Why then, one might ask, did the Fed announce changes to its plans to pare down its holdings of Treasury and mortgage-backed securities? Actually, there wasn’t much of a change at all. Here’s what Chairman Jay Powell said at his news conference last week:

1-The Fed will maintain a balance sheet big enough to satisfy banks’ demand for reserves, with a buffer above that so the Fed will not have to intervene in the money markets on a day-to-day basis;

2-The Fed now expects banks to demand more reserves than previously thought, so its balance sheet will likely be larger — this means more securities in its portfolio;

3-The Fed could use its balance sheet more actively as a monetary policy tool but only if interest-rate adjustments — its primary tool — were to prove inadequate.
None of this should be a surprise. It always was likely that the Fed would maintain the current “floor” system, in which its choice of the interest rate it pays on reserves drives monetary policy. It also has been clear that banks would have a greater demand for reserves than in prior expansions. That’s because the central bank now pays interest on those reserves, and post-crisis regulations require banks to keep a lot more cash and other liquid assets on hand.

The new news here is simply that Fed sees greater demand for reserves than it expected a year ago. But even this should not be a big surprise. After all, the federal funds rate — the interest rate that banks pay to borrow reserves from one another — had crept up to equal the rate that the Fed itself pays on reserves. So the central bank’s conclusion is just consistent with what we have already seen happening in money markets.

The concept of using the balance sheet as a monetary-policy tool isn’t new, either. It has always been part of the Fed’s toolkit. The shift is merely in emphasis. When the Fed was clearly on a tightening path, the attention was on interest rates. The Fed has made it clear that this is the primary tool of monetary policy and that hasn’t changed a whit. However, now that the balance sheet is getting more attention and the direction of short-term interest rates is less certain, the Fed is simply reminding people that the balance sheet is still available in circumstances where its primary tool might be insufficient.

We are nowhere close to that situation today. The balance sheet tool becomes relevant only if the economy falters badly and the Fed needs more ammunition.

It’s worth pointing out that the composition of the balance sheet is also important. Not only does it matter how much the Fed holds in Treasury and mortgage-backed securities, but also — for Treasury securities — whether they are predominately short-term bills, medium-term notes or long-term bonds.

On this score, the Fed faces several important decisions. First, once the balance sheet gets to the desired size, what will it do with its still-large holdings of mortgage-backed securities? Will it just let them run off passively, or more actively sell them off? Under a passive approach, it would take several decades for the holdings to disappear.

Second, on the Treasury side, what should the composition be? Before the crisis, the Fed held Treasury securities across the maturity spectrum. Now, with a much bigger balance sheet, there is more reason to shift to Treasury bills. Holding mostly bills would reduce exposure to interest rate risk and increase the firepower available to fight future economic downturns. Should quantitative easing be needed, the Fed would have greater scope to extend the maturities of its holdings, not just increase the size of its balance sheet.

The bottom line: The Fed’s balance sheet isn’t the threat that market participants sometimes make it out to be, and last week’s announcements do not have significant implications for the interest rate outlook. Market participants would be better off focusing on the economic outlook. This is what will drive monetary policy and the Fed’s decisions about the appropriate trajectory for short-term interest rates over the next year. If the outlook changes, so will the Fed’s thinking.

sorce:
https://www.zerohedge.com/news/2019-02- ... ance-sheet
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LikeRe: Fed's Dudley Explains "How I Learned To Stop Worrying & Love The Fed's Balance Sheet"

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navid110 wrote: Wed Feb 06, 2019 8:13 am
The bottom line: The Fed’s balance sheet isn’t the threat that market participants sometimes make it out to be, and last week’s announcements do not have significant implications for the interest rate outlook. Market participants would be better off focusing on the economic outlook. This is what will drive monetary policy and the Fed’s decisions about the appropriate trajectory for short-term interest rates over the next year. If the outlook changes, so will the Fed’s thinking.
Great article and so very true.
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US Dollar Index Seven-Day Advance Is The Longest In Two Years

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Dollar Index Seven-Day Advance Is The Longest In Two Years


Overview: As North American traders return to their posts to put the finishing touches on the week's activity, the Dollar Index is extending its advance for a seventh consecutive session. If sustained, it will be the longest advance since February 2017. The rally was sparked after the dovish FOMC statement had sent the greenback lower and the employment data raised the possibility that the Fed overreacted to the stock market volatility. The S&P 500 turned back from the 200-day moving average and gapped lower yesterday (~2719-2724) setting the tone for the still holiday-thinned Asian markets, where the MSCI Asia Pacific Index fell for a third session, to snap a four-week rally. European shares are faring better, and Dow Jones Stoxx 600 is poised to extend its streak for the sixth week. Benchmark 10-Year bond yields are mostly a little lower. Oil is trading heavily, and with WTI for March delivery near $52.40, it is off more than 5% this week, the largest decline since late December. On the other hand, the shock from Vale is still behind iron ore's surge. Today's 5% rally bring it to a five year high.

Asia Pacific

When the Reserve Bank of Australia left rates on hold and did not appear to change its stance much the Australian dollar traded firm, but subsequent "clarification" has seen the Aussie tumble. Governor Lowe's neutral bias was quantified in today's Monetary Policy Statement. Growth and inflation forecast were cut. The Australian economy is expected to grow 2.5% in the year through June, down from 3.25% previously. And growth in the following year was cut by half a percentage point to 2.75%. The softer inflation forecast was attributed to oil, with core inflation remaining near 2%. The forecasts would suggest an easing bias rather than a neutral stance, that Lowe claims. Yet, the RBA still seems to be counting on the strength the job growth to boost wages and inflation. The underlying issue is whether the weakness in property prices will crimp consumption and growth. Australia's 10-year bond yield fell 13 bp this week to 2.10%. The record low was set in August 2016 near 1.80%.

Japan's December current account surplus, seasonally adjusted, was broadly in line with expectations. A key point to remember is that Japan's current account surplus is not driven by the trade balance as much as the investment income balance. Consider the trade surplus on the balance of payments basis was about JPY216 bln, while the seasonally adjusted current account surplus was roughly JPY1.56 trillion. Separately, and arguably, more importantly, Japan reported the first increase in overall household spending since August. It eked out a 0.1% rise year-over-year in December. On the other hand, Japan's leading economic indicator fell for a fourth month in December, and at 97.9 it is at the lowest level since October 2016.

The dollar's range for the week against the Japanese yen was set on Monday (~JPY109.45-JPY110.15). Thus far today is the first day this week, the dollar has not traded above JPY110, where a $640 mln option expires today. The market does not appear to have given up on trying to establish a hand-hold above JPY110, though it would seem to require stronger equities and/or higher yields. The Australian dollar is off about 2.4% this week (~$0.7075). The next downside target is near $0.7020. The New Zealand dollar also has sold-off this week, and its 2.2% decline (~$0.6750) is the largest since August.

Europe

The Euro made a marginal new low for the week, dipping below $1.1325 briefly. The pessimism toward EMU was not changed by today's data, which, on balance, was a bit better than expected. Italy's was not. December industrial output slumped 0.8%. The median forecast in the Bloomberg survey was for a 0.4% rise. However, news from France was better. French industrial production was expected to rise 0.6%. Instead, it rose 0.8% and manufacturing output itself was up 1.0%. This recoups most of the weakness since in November. For its part, Germany reported a considerably smaller trade surplus (13.9 bln euro in December vs. 20.4 bln euros in November, but more importantly, imports and exports recovered smartly. After falling 0.3% in November, exports rose 1.5%. Imports rose 1.2% after falling 1.3% in November.

UK Prime Minister May is still asking for some dilution in the plan for the Irish backstop, even though everyone has said not. Indeed, the backstop is in case no agreement is reached. There cannot be a time limit or it undermines the very purpose of the backstop. It would encourage delay tactics until the time limit passed. Meanwhile, a vote in Parliament that was expected next week looks likely to be delayed. Although everyone says they want to avoid a no-deal exit, it can still be stumbled into, and that continues to worry investors.

If the euro's losses are sustained, it will be the first week since May 2018 that it has fallen in each session. Yet all that has happened is that the euro has gone from the upper end of its range (~$1.15) to the lower end of its range (~$1.13). Indeed, it should not be surprising for the euro to snap its losing streak and close higher ahead of the weekend. Large option expires today $1.1280 and $1.1380 do not seem particularly relevant, but there is a 2.0 bln euro option struck at $1.1365 on Monday that may be interesting. Sterling is trading higher for the second day in a row, but it won't be enough to prevent the second consecutive weekly loss. Yesterday's losses nearly fulfilled a retracement objective (50%) of the rally since the flash crash in early January that is found near $1.2830. Its recovery suggests that perhaps some move was completed. On the upside, a move through yesterday's high near $1.30 would confirm a more constructive near-term technical outlook.

America

Trade talk optimism was hit yesterday. President Trump apparently indicated that there will be no meeting with China's President Xi before the early March deadline. Economic adviser Kudlow's assessment that there were still sizeable differences gave the sense that the lack of substantial progress was the reason the two presidents won't meet rather than a schedule conflict. At the same time, the battle over Chinese telecom companies continues, and formal action in the US will be forthcoming. Meanwhile, Germany is balking and is opposed to banning Huawei, for example. This will likely server to exacerbate tensions as the US-Europe trade talks move into focus. The UNCTAD found that Europe is poised to benefit the most from US-China trade tensions, though as a percentage of trade, Mexico, Vietnam, Australia, and Brazil may be larger beneficiaries from China looking for alternative sources of inputs.

There are no important US economic releases and the only Fed officials to speak is Daly, the new San Fransico Fed President. Canada reports housing starts and employment figures. The US dollar is breaking a five-week slide against the Canadian dollar This week's 1.6% (~CAD1.3315) gain offsets in full losses from the past three weeks. We see three drivers for the US-Canada exchange rate (short-to-medium term), interest rate differential, equity markets, (risk appetite) and oil prices. All three moved against the Canadian dollar in recent days. The nearby target is CAD1.3330 and then CAD1.3370. Mexico may announce a capital injection into PEMEX today. The central bank, as widely expected left overnight rate at 8.25% yesterday. The peso looks to be going nowhere quickly as the greenback remains chopping in MXN19.00-MXN19.20 range.

Sources: http://www.marctomarket.com/2019/02/dollar-index-seven-day-advance-is.html & https://www.investing.com/analysis/doll ... -200385595
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US Dollar Index in 2-day highs, approaches 97.00

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US Dollar Index in 2-day highs, approaches 97.00


  • The index picks up pace and is closer to 97.00.
  • Yields of the US 10-year note gyrate around 2.67%.
  • Fedspeak, NAHB index coming up next.

The greenback, in terms of the US Dollar Index (DXY), is now resuming the upside momentum and advances closer to the key barrier at 97.00 the figure.

US Dollar Index focused on trade, data

The index has regained some shine on Tuesday and is now navigating the area of 2-day highs in the boundaries of the 97.00 milestone. Market sentiment remains cautious and vigilant on developments from the US-China trade negotiations, which are resuming today in Washington.

In the meantime, US markets are slowly returning to normalcy following yesterday’s President’s Day holiday. In this context, yields of the key US 10-year reference stay so far sidelined around the 2.67% handle, a tad below Friday’s peaks.

In the US data universe, Cleveland Fed L.Mester (non voter, hawkish) is due to speak followed by the release of the NAHB index for the month of February.

What to look for around USD

Market participants have considered as positive the recent developments from the US-China negotiations in Beijing ahead of this week’s further talks in Washington. In the meantime, investors will remain vigilant on upcoming results on US calendar and the release of the FOMC minutes. Despite market participants are holding on to the idea of a potential slowdown in the US economy in the next months, the deterioration in overseas fundamentals in combination with ‘softer’ stance in G10 central banks keeps occasional dips in the buck somewhat shallow. This view is reinforced by rising scepticism over a potential halt in the Fed’s tightening cycle this year.

US Dollar Index relevant levels

At the moment, the pair is advancing 0.14% at 96.91 facing the immediate hurdle at 97.37 (2019 high Feb.15) seconded by 97.71 (2018 high Dec.14) and then 97.87 (monthly high Jun.20 2017). On the other hand, a breach of 96.65 (low Feb.18) would aim for 96.41 (55-day SMA) and finally 96.33 (21-day SMA).

Sources: https://forex-station.com (image) & https://www.fxstreet.com/news/us-dollar ... 1902190645 (article)
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USDCHF trades with modest losses, just below the parity mark

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USD/CHF trades with modest losses, just below the parity mark


  • The prevalent USD selling exerts some fresh downward pressure.
  • A fresh wave of global risk-on trade does little to lend any support.

The USD/CHF pair held on to its weaker tone through the early European session and has now moved within striking distance of over two-week lows, set last week.

The pair met with some fresh supply at the start of a new trading week and was now being weighed down by the prevalent US Dollar selling bias, led by growing market conviction that the Fed might refrain from raising interest rates further.

Meanwhile, a fresh wave of global risk-on trade, triggered by the latest US-China trade optimism and which tends to undermine demand for the Swiss Franc's safe-haven demand, also did little to lend any support or attract any buying interest.

The US President Donald Trump said on Sunday that he would delay a hike in US tariffs on Chinese imports to 25% - originally scheduled for March 1, and raised hopes over a possible resolution of the long-standing US-China trade disputes.

With the USD price dynamics turning out to be an exclusive driver of the pair's momentum, investors now look forward to comments by the Fed Governor Richard Clarida for some impetus amid absent relevant market moving economic releases.

Technical levels to watch

A follow-through weakness below the 0.9980 region (last week's swing low) is likely to accelerate the slide further towards the 0.9945-40 horizontal zone before the pair eventually drops to test the 0.9900 round figure mark. On the flip side, the 1.0020-25 region now seems to have emerged as an immediate hurdle, above which the pair is likely to aim towards surpassing the 1.0050 intermediate hurdle and aim towards conquering the 1.0100 handle.

Sources: https://forex-station.com (image) & https://www.fxstreet.com/news/usd-chf-t ... 1902250851
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