G3 central bank meetings

FX Daily: European pessimism, Chinese optimism

In quiet markets ahead of G3 central bank meetings later this week, currency pairs are being driven by the soft set of eurozone July PMIs and also the prospect of some renewed Chinese stimulus after China's Politburo promised 'counter-cyclical' measures. These look like short-term trends. We would wait for the policy meetings to set the true FX tone.

 

USD: China stimulus – here we go again

In quiet markets ahead of G3 central bank meetings, the FX market's focus has once again fallen on China. Having broadly disappointed investor expectations this year, China's economy is seen as enjoying a lift after China's Politburo yesterday promised 'counter-cyclical' measures. These follow a drip feed of support measures over recent weeks, such as the easing of restrictions in the mortgage sector, the encouragement to buy cars and electronics, and perhaps some support to local governments saddled with debt. None of these seem to be a game-c

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FX Daily: Dollar Bears Urged to Be Patient as Dollar Reconnects with Rate Differentials

ING Economics ING Economics 24.07.2023 09:26
FX Daily: Dollar bears being asked for patience Quiet summer markets are seeing dollar pairs consolidate in new, slightly lower ranges. It will be another quiet session today ahead of a big week for G3 central bank meetings. Dollar bears may find some reassurance from emerging markets, where the PBoC is trying to limit USD/CNY gains and the South African rand is holding up despite the lack of a rate hike.   USD: Dollar reconnects with short-term rate differentials As my colleague Francesco Pesole has been writing this week, the dollar has made a modest comeback as both US yields adjust higher and short-term rate spreads stay in the dollar's favour. In fact, one could argue that the dollar should even be a little higher given that two-year US yields have retraced about 50% of their drop in the first half of July and the DXY has only retraced one-third of its losses. Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data. Yesterday's drop in US initial claims clearly did not help here. Casting around the world in quiet FX markets we see the People's Bank of China (PBoC) continuing to fight a weaker renminbi by printing lower USD/CNY fixings than model-based estimates suggest. Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a 'sell China' mentality building. The PBoC's battle against a stronger USD/CNY is a slight dollar negative in quiet summer markets – especially should it extend to outright dollar sales. Today's session should be a quiet one as the market prepares for US Federal Reserve, European Central Bank and Bank of Japan (BoJ) meetings next week. Regarding the BoJ, expectations of any Yield Curve Control policy tweak seem very low (perhaps too low) given that the 30-year Japanese government bond (JGB) yield is drifting lower and the forward market prices 10-year JGB yields at 50bp in three months and at only 55bp in six months. These 10-year yields should be priced a lot higher were the market expecting a policy change. USD/JPY may well drift to the 141.15/142.00 area before next Friday's BoJ meeting.
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FX Daily: Dollar Bears Urged to Be Patient as Dollar Reconnects with Rate Differentials - 24.07.2023

ING Economics ING Economics 24.07.2023 09:26
FX Daily: Dollar bears being asked for patience Quiet summer markets are seeing dollar pairs consolidate in new, slightly lower ranges. It will be another quiet session today ahead of a big week for G3 central bank meetings. Dollar bears may find some reassurance from emerging markets, where the PBoC is trying to limit USD/CNY gains and the South African rand is holding up despite the lack of a rate hike.   USD: Dollar reconnects with short-term rate differentials As my colleague Francesco Pesole has been writing this week, the dollar has made a modest comeback as both US yields adjust higher and short-term rate spreads stay in the dollar's favour. In fact, one could argue that the dollar should even be a little higher given that two-year US yields have retraced about 50% of their drop in the first half of July and the DXY has only retraced one-third of its losses. Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data. Yesterday's drop in US initial claims clearly did not help here. Casting around the world in quiet FX markets we see the People's Bank of China (PBoC) continuing to fight a weaker renminbi by printing lower USD/CNY fixings than model-based estimates suggest. Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a 'sell China' mentality building. The PBoC's battle against a stronger USD/CNY is a slight dollar negative in quiet summer markets – especially should it extend to outright dollar sales. Today's session should be a quiet one as the market prepares for US Federal Reserve, European Central Bank and Bank of Japan (BoJ) meetings next week. Regarding the BoJ, expectations of any Yield Curve Control policy tweak seem very low (perhaps too low) given that the 30-year Japanese government bond (JGB) yield is drifting lower and the forward market prices 10-year JGB yields at 50bp in three months and at only 55bp in six months. These 10-year yields should be priced a lot higher were the market expecting a policy change. USD/JPY may well drift to the 141.15/142.00 area before next Friday's BoJ meeting.
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FX Daily: European Pessimism and Chinese Optimism Influence Currency Pairs

ING Economics ING Economics 25.07.2023 09:03
FX Daily: European pessimism, Chinese optimism In quiet markets ahead of G3 central bank meetings later this week, currency pairs are being driven by the soft set of eurozone July PMIs and also the prospect of some renewed Chinese stimulus after China's Politburo promised 'counter-cyclical' measures. These look like short-term trends. We would wait for the policy meetings to set the true FX tone.   USD: China stimulus – here we go again In quiet markets ahead of G3 central bank meetings, the FX market's focus has once again fallen on China. Having broadly disappointed investor expectations this year, China's economy is seen as enjoying a lift after China's Politburo yesterday promised 'counter-cyclical' measures. These follow a drip feed of support measures over recent weeks, such as the easing of restrictions in the mortgage sector, the encouragement to buy cars and electronics, and perhaps some support to local governments saddled with debt. None of these seem to be a game-changer so far, but the market optimists are hoping that this new directive from the Politburo will be turned into powerful stimulus at the State Council level.  Tellingly, USD/CNH did not move much when these measures were announced during the European session yesterday, but Asian investors are running with the story and driving the renminbi some 0.6% higher this European morning. Chinese equities are having a decent run too. These short-term trends may well fizzle out – we've been here before with prospects of China stimulus – but they could provide some mild support to emerging market and commodity currencies through the session. The reason why we warn against pursuing a full 'risk-on' rally in Rest of World (RoW) currencies is that the European economy looks weak and tomorrow's FOMC meeting will probably see the Fed's foot remaining firmly on the monetary brakes. Additionally, there was an overnight Wall Street Journal article by Fed watcher Nick Timiraos entitled: 'Why the Fed isn't Ready to Declare Victory on Inflation' – perhaps a nod to a still hawkish FOMC statement tomorrow.  Today's US data releases are second tier, but the consensus is expecting a decent tick-up in the July consumer confidence reading. As in the UK, there is a growing sense that consumers have so far been able to handle the pain of higher rates, diluting the case for any early easing cycles.   DXY can trade a tight 101.00-101.50 range ahead of tomorrow's Fed meeting.

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