As central banks consider currency intervention and the Fed continues its inflation fight, what will Biden say?

My takeaway …

At 11:29 pm EDT, the US Dollar Index is at 113.77. This is up two whole points from its reading at 4:00 pm EDT on 23 September 2022. Last week, the Board of Governors of the Federal Reserve System messaged to the financial world that it was going to continue its fight against inflation by implementing tighter monetary policy via rate hikes.

The current federal funds target range is 3.00% to 3.25%. A number of primary dealers last week raised their prime lending rates to 6.50% in the wake of the Board of Governor’s rate hikes.

Increased rates throughout the economy may result in increased costs of doing business as well as raise the servicing costs of current U.S. government debt. Foreign central banks, as you may determine from the articles I share below, are intervening to strengthen their currencies by pulling more currency out of their respective financial systems.

While Jerome Powell, chairman of the Federal Reserve System, has admitted that there will be pain along the way as rates tighten to combat inflation, President Biden has not been as definitive about the expected stress Americans are expected to bear should increased rates result in business cycle downturn and layoffs. I would expect Mr Biden to address the potential of economic slow down over the weeks leading up the election and definitely into the holiday season.

A lot is at stake politically for the President. Should analysts expectations of slow down occur, the appearance of not being effective in the face of a downturn may cost Mr Biden’s party some votes during November’s mid-term elections.

Alton Drew

25 September 2022

So, what have I been reading?

China. People’s Bank of China. yuan. Risk reserve. “The People’s Bank of China will impose a risk reserve requirement of 20% on banks’ foreign-exchange forward sales to clients, it said in a statement on Monday. The reserve ratio has been zero since 2020. The additional risk reserve requirements would make it expensive for traders to buy foreign-exchange through forwards or options, a move that may curb bearish yuan bets that have pushed the currency to the lowest in two years. ” — Yahoo!Finance.

The PBOC reports the USD/CNY fixed at 7.0298.

United Kingdom. pound. “Unless something can be done to address these fiscal concerns, or the economy shows some surprisingly strong growth data, it looks like investors will continue to shun sterling,” ING’s Antoine Bouvet and Chris Turner wrote on Friday.  “Given our bias for the dollar rally going into over-drive as well, we think the market may be underpricing the chances of parity.” — Forbes.

The Bank of England reports its current policy target rate of 2.25% and the economy’s last inflation print of 9.9%. OANDA, a brokerage, reports GBP/USD at $1.0847.

Japan. Bank of Japan. yen. “The Bank of Japan boosted its bond purchase amounts at its regular operation on Monday, as the benchmark yield rebounded toward the upper end of the central bank’s tolerated trading range.” — Yahoo!Finance.

According to OANDA, a brokerage, the USD/JPY is trading at 143.337.

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