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How will the Fed and BoJ react to the global risks? - Commerzbank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 22, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - In the coming week, the focus will be on the Fed and the Bank of Japan. According to Thu Lan Nguyen, analyst at Commerzbank Amid the global risks, both are likely to adopt a waiting stance at their monetary policy meetings. “As speculation about further monetary easing in Japan has grown recently, the JPY should profit from this”.

    Key Quotes

    “Just how worried is the Fed about the current market turmoil (falling oil price, capital flight in China, general weakness of the emerging markets)? Market participants will be hoping for an answer to this question next week when the Fed Open Market Committee convenes.”

    “While Fed chair Janet Yellen will not hold a press conference after the meeting, the statement should contain first signs of how confident US central bankers feel about their growth and inflation outlook and thus about continuing the interest rate hike cycle. The majority of investors currently expect the Fed to take quite a long break on rates now, with only one more rate rise presently priced in for this year.”

    “Even if the Fed looks less optimistic next week given the global risks, this will merely confirm market expectations and therefore hardly weigh on the USD. To move USD exchange rates significantly, the Fed would have to send out clear signals that it is defying the current economic headwind and could possibly increase interest rates further at one of the next meetings. However, it will not want to commit itself in such a way at this time, which is why we do not expect much tailwind for the US dollar.”

    “At the end of the coming week, the Bank of Japan (BoJ) holds its first monetary meeting of the year as well. Here too, the debate on further monetary strategy has intensified recently. Besides the falling oil price, the stronger JPY threatens to destroy the central bank’s efforts to bring inflation up to its 2% target. Consequently, speculation about a further loosening of monetary policy has grown of late. That said, the latest comments by BoJ chair Haruhiko Kuroda rather suggest a waiting stance for now. This means more upside potential for JPY in the short term.”

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