Will the Fed decrease the supply of currency for trade?

A review of the minutes from the Federal Open Market Committee meeting last month left me with the impression that the Federal Reserve will be ready to raise its overnight rate on interbank loans (the fed funds rate) in June of this year versus waiting until 2023. Board members and other FOMC participants see a strong economic outlook for the US along with higher inflation and tighter labor markets. While the “taper” word has for the most part gone the way of the other t-word, “transitory”, both concepts are still integral to Federal Reserve monetary policy over the next year.

By the middle of this month, the Federal Reserve is expected to purchase $40 billion of Treasury securities and $20 billion of agency mortgage-backed securities in part to maintain a smooth transition to a run-off of its balance sheet. The FOMC made clear in its minutes that the fed funds rate was still its primary monetary policy tool for achieving full employment and stable prices. The fed funds rate provides the Federal Reserve with more outcome certainty as opposed to additions to or subtraction from its balance sheet.

The FOMC also noted that during the period between its last two meetings, there were no attempts at intervening in the foreign currency markets as part of any dollar-support policy.

Touching on currency supply for a minute, the fourth quarter of 2021 saw the supply of US currency in circulation increase by 1.48% while the dollar index increased by 1.97%. I raise this merely as an interesting point given that an increase of currency in this instance may have been accompanied by a greater increase in demand by foreign and domestic customers.

In my opinion, there should be no surprise about a decrease in currency supply over the next twelve months. The fed funds rate will increase likely along with an increase in the amount of cash member banks are required to keep on reserve with the Fed. Less money in the system will lead to increases in interest rates. Increases may likely lead to increased yields making US bonds attractive.

People interested in retail forex trade should be mindful of brokers not on the up and up. Volatility and the size of the retail market is like blood in the water for less than scrupulous brokers selling you a pipe dream. Make the new year a great one.

Alton Drew

6.01.2022

Call to action: To support this page, please visit our advertisers.

Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

Interbank Market News Scan: All’s quiet on the central bank front …

Interbank, Bank of EnglandBen Broadbent, Deputy Governor of the Bank of England for Monetary Policy, will provide testimony before Parliament’s Environment, Food, and Rural Affairs Committee on 9 November 2021 at 3:30 pm, London time.  Dr Broadband has specific responsibility for the BOE’s monetary policy, including monetary analysis, banknotes, and data and analytics transformation.

Interbank, European Central Bank. Philip Lane, a member of the executive committee of the European Central Bank reiterates expectation of inflation slowing in the middle of 2022 and that patience is needed during this temporary inflationary period. Signals no rush in tightening financing costs, tapering asset purchases, or raising interest rates. https://www.ecb.europa.eu/press/inter/date/2021/html/ecb.in211108~c270ad5bc6.en.html

Interbank, Reserve Bank of New Zealand.  In its latest news release (3 November 2021), the Reserve bank of New Zealand provides insights into monetary policy during a pandemic and impact of inflation on asset prices.

Interbank, Federal Reserve.  Richard Clarida, vice-chair of the Board of Governors of the Federal Reserve, today will participate in a panel discussion on the Fed’s flexible average inflation targeting policy at 9:00 am EDT. Under FAIT, the Federal Reserve seeks inflation that averages 2% over a time frame that is not formally defined.  FAIT aims at avoiding dampening economic growth via a premature increase in the federal funds rate, the rate banks charge each other for overnight loans.    

Traders should contact their brokers for more information on how foreign exchange rates may react to events described in the above blog post.

Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

Alton Drew

8.11.2021

National Futures Association announcements of interest …

For Immediate Release
April 28, 2021

For more information contact:

Christie Hillsman, 312-781-1490, chillsman@nfa.futures.org
Karen Wuertz, 312-781-1335, kwuertz@nfa.futures.org

NFA orders former associated person Jeremy Ruth never to reapply for NFA membership

April 28, Chicago—NFA has ordered Jeremy Ruth, a former associated person of Postrock Brokerage LLC (Postrock), never to reapply for NFA membership status in any capacity or act as a principal of an NFA Member. Postrock is a former NFA Member introducing broker located in Chicago, Illinois.

The Decision, issued by an NFA Hearing Panel, is based on a Complaint issued by NFA’s Business Conduct Committee and a settlement offer submitted by Ruth, in which he neither admitted nor denied the allegations. The Complaint alleges that he failed to disclose the impact of commissions on customers’ profit potential and placed trades for customers which offered no economic benefit to them and only generated additional commissions. The Complaint also alleges that Ruth made misleading statements to customers and failed to disclose that all of Ruth’s other customers had lost money. Finally, the Complaint alleges that Ruth made unauthorized trades for customers or exercised discretion over customer accounts without obtaining written authority.

For more information, read the Complaint and Decision.

Source: National Futures Association

Interbank market news scan: Major G-10 currencies split on growth with Swiss, Norwegian, and Swedish currencies depreciating…

The Swiss franc, Norwegian krone, and Swedish kroner ended this week depreciating the most against the US dollar. More later today as to the political, economic, central bank, and commodity price information that not only impacted the market but that brokers should be sharing to help maintain fairness and integrity in the foreign exchange market.

Currency pair22 March 202125 March 2021Percentage change
EUR/USD1.19131.1798-.96
AUD/USD0.77340.7592-1.84
GBP/USD1.38511.3712-1.00
USD/JPY108.765109.0580.27
NZD/USD0.71610.6966-2.7
USD/CHF0.92620.93721.19
USD/NOK8.52218.61381.08
USD/SEK8.53018.62931.16
USD/CAD1.25091.25880.63
Source: OANDA