Central Bank Roundup Part I: Fed, BOE, ECB, BOJ

What’s up forex traders? The forex market treatin’ ya right lately? I sure do hope so! In any case, we sure got a bunch of central bank decisions and statements lined up for the coming week’s forex calendar, huh? And if you’ve been missing out on what the central banks have been up to lately, worry not ‘coz I’ve got yer back with this edition of my Central Bank Roundup!

For this write-up, I’ll give y’all a rundown on what the Fed, the BOE, the ECB, and the BOJ have been up to. Oh, this is the first part in a two-part series. You can read the second part here.

The Federal Reserve (Fed)

In their July FOMC meeting minutes, the FOMC members were pretty happy with the moderately expanding economy. And they should be since the economy is still doing quite well since then. However, most of the participants “judged that the conditions for policy firming had not yet been achieved.” But they were quick to add that the U.S. economy is getting there.

Many of the members also had an optimistic outlook for inflation since they believed that “sustained economic growth and further improvement on the labor market” would drive inflation higher. Some participants, however, believed that “the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term,” which is one of the conditions for a rate hike. And the most recent data supports this since CPI readings aren’t exactly lighting any fireworks.

Moreover, some of the FOMC members, such as Federal Reserve Bank of New York President William Dudley, still hold this view. Just recently, Dudley said that a September rate hike is “less compelling” after the so-called Black Monday of August 24, which naturally made many forex traders cry and dump the Greenback at the time.

On the flipside, Federal Reserve Vice Chairman Stanley Fischer said in a later speech that the Fed “should not wait until inflation is back to 2 percent to begin tightening,” which made forex traders both optimisitic and confused at the same with regard to a potential rate hike on September 17.

The Bank of England (BOE)

During their September 10 rate decision, the BOE’s Monetary Policy Committee (MPC) members voted 8-1 to hold the main rate at 0.50% while voting 9-0 to maintain asset purchases at £375 billion per month.

As revealed in the meeting minutes, recent developments in China, as well as other emerging economies, have increased downside risks to growth due to “markedly higher volatility in commodity prices and global financial markets.” Although the recent global developments “do not as yet appear sufficient to alter materially the central outlook described in the August [Inflation] Report.”

This is understandable since, as I mentioned in yesterday’s article, exports to China account for only 4.8% of total shipments from the U.K. while imports from China comprise 8.7% of all the goods and services bought as of last year.

Overall, the MPC members remained upbeat on economic growth and inflation, but they expressed some concern over the labor market’s future prospects, though.

The European Central Bank (ECB)

On September 3, the ECB decided to keep the minimum bid rate on hold at 0.05%, which didn’t really cause a reaction from forex traders since it was an expected move. In the press conference that shortly followed, however, ECB President Mario Draghi announced that annual real GDP growth for the euro zone was downgraded to “1.4% in 2015, 1.7% in 2016, and 1.8% in 2017” due to “lower external demand owing to weaker growth in emerging markets.”

Draghi also announced that the ECB revised its inflation outlook lower to a measly “0.1% in 2015, 1.1% in 2016 and 1.7% in 2017” due largely to lower oil prices. As for the ECB’s €60 billion monthly asset purchase program, Draghi said that he is ready to extend the program beyond September 2016 “if necessary.”

After hearing about these downgrades and the possibility of more quantitative easing, forex traders were in such a panic to sell the euro that Draghi’s slightly upbeat statement about the ECB expecting the “economic recovery to continue, albeit at a somewhat weaker pace than earlier expected” completely flew over many forex traders’ heads. And Draghi seems to be right, for now at least, since the latest data dump supports his assertions.

Forex traders later got their act together, though, since most euro pairs were able to recover to their pre-ECB statement levels (and then some).

The Bank of Japan (BOJ)

The BOJ is scheduled to release its monetary policy statement on September 15, but what happened last time? Well, in the BOJ’s August 7 statement, BOJ officials voted 8-1 in favor of maintaining the current monetary policy of increasing the monetary base at an annual pace of 80 trillion yen and keeping interest rates at around zero percent.

Furthermore, the BOJ was pleased with Japan’s moderate recovery, and their outlook is that Japan will “continue recovering moderately.” Hmmm. I don’t know about that since the most recent data shows that Japan just encountered a major road bump.

Still, BOJ Governor Haruhiko Kuroda expressed in a recent speech that he remains pretty upbeat about the economy. Kuroda also stubbornly refused to change his position with regard to hitting the 2% inflation by September 2016, saying that the timing has more to do with oil prices, and he even hinted that further stimulus is not needed if a delay is due mostly to slumping oil prices.