Aside from the BOC and BOE printing their monetary policy decisions, three other central banks managed to make headlines this week. Here’s our list!
1. Janet Yellen
Okay, Yellen may not be a central bank per se, but a Fed head honcho’s Oval Office meeting with the POTUS himself, an event that hasn’t happened since November 2014, got the market bees buzzing.
According to official statements, Yellen, Obama, and VP Biden talked about their short and long-term growth outlook, domestic and global risks to the economy, the labor market, and the progress made on implementing Wall Street reforms.
Two days later Yellen reiterated her cautious approach to interest rates, saying that uncertainties over China’s growth and European integration warrants risk management to “avoid the big mistakes.” Guess we won’t be seeing more rate hikes until we see significantly strong data from Uncle Sam!
2. Monetary Authority of Singapore (MAS)
Yesterday the MAS surprised the markets when it shifted its stance on the Singapore dollar from “modest, gradual appreciation” to “neutral,” a move not seen since the 2008 financial crisis.
The central bank, which manages monetary policy by letting the Singapore dollar nominal effective exchange rate (S$NEER) rise or fall against an undisclosed basket of currencies, has decided that it won’t tolerate any more SGD appreciation against the Greenback.
The MAS defended that it’s not a move to depreciate the currency, as the width of the policy band and the level at which it is centered will remain unchanged. Looks like the announcement worked, as it spooked SGD bulls into pushing USD/SGD 136 pips higher (+1.01%) on the day.
3. People’s Bank of China (PBoC)
The People’s Bank of China (PBoC) inspired a bit of risk aversion yesterday when it set the yuan at 6.4891 per dollar, 0.46% weaker than Wednesday’s 6.4591. It marked the biggest decline since January 7.
Hours before China’s GDP release the central bank followed it up by dragging the yuan down to 6.4908 per dollar and extended the currency’s losing streak to its longest in a month. Talk about competing in a race to debase!
4. Bank of Canada (BOC)
As mentioned yesterday, the BOC kept its monetary policies unchanged. The Loonie didn’t come out unscathed though, as the central bank’s lower growth forecasts, dissatisfaction over the Loonie’s strength, and an almost rate cut dragged the currency lower. Read all about what happened from my post yesterday!
5. Bank of England (BOE)
BOE Governor Mark Carney and his gang performed the finale of this week’s central bank show. As expected, the Monetary Policy Committee (MPC) kept its interest rates unchanged at 0.50% with the monthly asset purchases steady at 375B GBP.
The BOE stressed that steering inflation to its 2.0% target requires a balance between the improvements in the external drags (e.g. oil prices and global market uncertainty) and rising domestic prices. Right now the central bank expects inflation to rise over the next year as rising oil prices and a weaker pound help boost economic activity.
The BOE also talked a lot about the upcoming EU referendum, saying that it’s a big contributor to the pound’s recent weakness. Brexit concerns are also expected to make macroeconomic and financial market indicators harder to interpret in the next few months. Heck, the issue has already inspired delays in capital expenditure and commercial property decisions, and are weighing down H1 2016’s growth projections.
Overall the central bank is still leaning towards a rate hike than a rate cut though it also warned that it’s an expectation and not a promise. The BOE is likely to assess the sustainability of the pound’s weakness and the impact of the EU referendum before it makes further changes to its policies.
Not surprisingly, the non-action didn’t do much for volatility hunters. It boosted the pound though, at least until the U.S. session before a new catalyst came along.
That’s it for my recap this week! Which of the central banks above has influenced your trades the most this week? Did you have to execute any fancy strategies to get pips? Give us a shoutout!