Interbank market news scan: Foreign exchange markets preparing for U.S. jobs situation report…

March’s Nonfarm Payrolls report, which is due out on Friday at 12:30 GMT, is set to show an increase of 630,000 jobs. Here you can find the forecasts of economists and researchers of eight major banks regarding the upcoming employment data. Nonfarm Payrolls Preview: Forecast from eight major banks for March jobs report (fxstreet.com)

The U.S. dollar will remain strong for at least another month, according to a Reuters poll of foreign exchange strategists, who still forecast that the currency will weaken in the longer term. U.S. Dollar to Remain Strong for at Least Another Month: Reuters Poll | Investing News | US News

Currency PairsRates as of 2:15pm 1 April 2021
EUR/USD1.1775
AUD/USD0.7607
GBP/USD1.3824
USD/JPY110.5800
NZD/USD0.7021
USD/CHF0.9413
USD/NOK8.5295
USD/SEK8.7090
USD/CAD1.2565
  
Selected Rates 
Fed Funds.07
Bank prime rate3.25
Discount window.25
2-yr Treasury.16
10-yr Treasury1.68
30-yr2.34
Source: Bloomberg, Federal Reserve, Reuters

Interbank market news scan: USD/JPY continues to increase since beginning of Biden administration; Euro continues its uptick as well …

Currency pair20 January 202124 March 2021Percentage change
USD/JPY103.9300108.70004.6
USD/GBP0.73450.7293-.71
USD/CAD1.27311.2568-1.3
USD/EUR 0.82540.84522.4
Source: Reuters

As of 9:18 EST, 24 March 2021

Interbank market news scan as of 3:32 pm AST: Peso, Indian rupee, and Japanese yen weaken against the dollar

Currency pairsExchange Rate Before Event 1:00pm ASTEventPost EventExchange Rate Post Event
AUD/USD0.7666Federal Reserve announcement0.7681Dollar weakens vs AUD
USD/CAD1.2774Federal Reserve announcement1.2759Canadian dollar strengthens vs US dollar
USD/CNY6.4822Federal Reserve announcement6.4822No change
EUR/USD1.2075Federal Reserve announcement1.2118Dollar weakens vs the euro
USD/INR73.0065Federal Reserve announcement73.0500Indian rupee continues weakness vs US dollar
GBP/USD1.3689Federal Reserve announcement1.3715US dollar weakens vs British pound
USD/JPY104.0000Federal Reserve announcement104.0600Japanese yen showing weakness vs US dollar
USD/MXN20.1832Federal Reserve announcement20.7000Mexican peso weakens against US dollar
USD/DKK6.1554Federal Reserve announcement6.1554No change
USD/NOK8.6452Federal Reserve announcement8.6242Norwegian Krona strengthens vs US dollar
Sources: Federal Reserve, Reuters

Today, Jerome Powell, chairman of the Board of Governors of the Federal Reserve issued the following statement:

“The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

Strategic takeaways:

  1. Traders should take a strategic position in the flow of Federal Reserve decision making on rates with the expectation of continued dollar weakness for some time as the Federal Reserve maintains its flexible average inflation rate policy for the net one to two years.
  2. The Federal Reserve may be growing weary of noting the need for fiscal action on the part of the U.S. Congress or sees no need for making such calls given the gravity of the virus and a Democratic-controlled White House and Congress that appear intent on providing another fiscal injection into the economy.
  3. Traders should expect Congress to authorize additional borrowing to finance additional stimulus. Additional fiscal demand may come at a higher interest rate price for taxpayers. Depending on how government structures the stimulus spending, monies directed to infrastructure and the ensuing contracts entered into to bring about infrastructure spending may attract additional domestic and foreign capital.
  4. The Mexican peso, Indian rupee, and Japanese yen weakened after the announcement. The dollar continued its weakness in its more popular currency pairs: the EUR/USD and the GBP/USD. The Chinese yuan remained unchanged expectedly given the People’s Bank of China’s recent announcement on their currency’s value.

Government strategy: Strong dollar versus weak dollar policy …

Earlier today, Christine Lagarde, president of the European Central Bank, gave a shout out to Janet Yellen, the U.S. Treasury-elect. President Lagarde wished Ms Yellen well on her confirmation which is expected to go favorably sometime this week. Both women have commented on the state of the foreign exchange markets this week with Dr Yellen expressing her preference for market determined foreign exchange rates and President Lagarde telling reporters during today’s European Central Bank policy rate announcement that the ECB would be monitoring foreign exchange rates “very closely.”

In its early days, the Trump administration expressed a preference for a “strong” dollar. A strong dollar scenario is one where the U.S. dollar has risen to a historically high exchange rate relative to another currency. Strength could be attributable to another nation devaluing its currency relative to the dollar in an effort to make the foreign country’s exports more competitive.

Deleveraging is another method of dollar strengthening where debts are paid off which reduces the amount of dollars in the system thus increasing the value of the dollar.

Although a strong dollar protects foreign investor holdings of U.S. assets , the higher prices for imports faced by Americans could create a political scene where consumers start asking their government to reverse the course. The prior administration’s use of tariffs in its trade spat with China raised such concerns.

While Ms Yellen has again expressed her preference for market-determined rates, her future Treasury Department could buy and sell foreign currency for the purpose of narrowing exchange rate movements should a market-determination scheme not meet the Biden administration’s policy objectives. If the dollar is viewed as depreciating too quickly, Treasury could boost demand and value by using foreign currency to buy the greenback. If the dollar is viewed as appreciating too quickly, the Treasury could resort to using the dollar to buy foreign currency. If Dr. Yellen stays the course on a market policy, then the tactic will be to allow the foreign exchange rate to move to equilibrium.

Across the Atlantic, President Lagarde will likely not just look at exchange rates but try to determine the impact rates is having on yields. The European Union has been signaling its desire to boost the status of its currency, hoping to attract more investment to the Eurozone. President Lagarde would likely want to see appreciation in the euro and an accompanying increase in yields.

Traders and brokers should pay close attention to policy moves designed to make the euro and the dollar more attractive to investors and also how the European Union positions itself between the United States and China. Depending on how competitive the United States and the European Union become, shout outs between Dr yellen and President Lagarde will become more interesting.

Government strategy: Strong dollar versus weak dollar policy …

Earlier today, Christine Lagarde, president of the European Central Bank, gave a shout out to Janet Yellen, the U.S. Treasury-elect. President Lagarde wished Ms Yellen well on her confirmation which is expected to go favorably sometime this week. Both women have commented on the state of the foreign exchange markets this week with Dr Yellen expressing her preference for market determined foreign exchange rates and President Lagarde telling reporters during today’s European Central Bank policy rate announcement that the ECB would be monitoring foreign exchange rates “very closely.”

In its early days, the Trump administration expressed a preference for a “strong” dollar. A strong dollar scenario is one where the U.S. dollar has risen to a historically high exchange rate relative to another currency. Strength could be attributable to another nation devaluing its currency relative to the dollar in an effort to make the foreign country’s exports more competitive.

Deleveraging is another method of dollar strengthening where debts are paid off which reduces the amount of dollars in the system thus increasing the value of the dollar.

Although a strong dollar protects foreign investor holdings of U.S. assets , the higher prices for imports faced by Americans could create a political scene where consumers start asking their government to reverse the course. The prior administration’s use of tariffs in its trade spat with China raised such concerns.

While Ms Yellen has again expressed her preference for market-determined rates, her future Treasury Department could buy and sell foreign currency for the purpose of narrowing exchange rate movements should a market-determination scheme not meet the Biden administration’s policy objectives. If the dollar is viewed as depreciating too quickly, Treasury could boost demand and value by using foreign currency to buy the greenback. If the dollar is viewed as appreciating too quickly, the Treasury could resort to using the dollar to buy foreign currency. If Dr. Yellen stays the course on a market policy, then the tactic will be to allow the foreign exchange rate to move to equilibrium.

Across the Atlantic, President Lagarde will likely not just look at exchange rates but try to determine the impact rates is having on yields. The European Union has been signaling its desire to boost the status of its currency, hoping to attract more investment to the Eurozone. President Lagarde would likely want to see appreciation in the euro and an accompanying increase in yields.

Traders and brokers should pay close attention to policy moves designed to make the euro and the dollar more attractive to investors and also how the European Union positions itself between the United States and China. Depending on how competitive the United States and the European Union become, shout outs between Dr yellen and President Lagarde will become more interesting.

As of 10:59 am AST, dollar shows some strengthening as yields increase

PairsFederal Reserve as of 8 January 2021OANDA as of 11 January 2021OANDA as of 12 January 2021 10:59 am AST
GBP/USD1.35831.35031.35026
USD/CAD1.26981.27691.2769
USD/CNH6.47506.47826.4782
USD/DKK6.06976.11156.1115
EUR/USD1.22521.21671.2167
USD/INR73.310073.409373.4093
USD/MXN19.941020.120320.1203
USD/JPY103.8900104.1600104.1600
USD/NOK8.40748.51598.5159
USD/SEK8.20858.28078.2807
USD/CHF0.88430.88920.8892
Sources: Federal Reserve, OANDA
RatesFederal Reserve as of 8 January 2021Bloomberg as of 12 January 2021 10:59 am AST
Federal Funds Rate0.090.08
Prime Rate3.253.25
3-month Treasury0.080.08
2-year Treasury0.140.15
10-year Treasury1.131.17
30-year Treasury1.871.89
Sources: Federal Reserve, Bloomberg

As of 10:00 pm AST, the dollar strengthens against the rupee, peso, yen, Swedish krona, and Swiss franc …

PairsFederal Reserve as of 4 January 2021OANDA as of 4 January 2021OANDA as of 10 January 2021 10:00 pm AST
GBP/USD1.36621.36331.3559
USD/CAD1.27531.27261.2687
USD/CNH6.52506.45526.4631
USD/DKK6.08396.06576.0823
EUR/USD1.22301.22641.2215
USD/INR73.010072.936773.2500
USD/MXN19.892019.838219.9603
USD/JPY103.1900103.0200103.9400
USD/NOK8.57578.53008.4110
USD/SEK8.20958.20918.2316
USD/CHF0.88410.88150.8851
Source: Federal Reserve, OANDA

Legal/Political/Economic/ Events Impacting US Dollar

Pressure mounts on US president to leave office before 20 January

At the time of this writing, no public statement surrounding the issue of leaving office has been issued by President Trump. Bloomberg reports mounting pressure on Vice President Mike Pence to gather the President’s cabinet and bring about Mr Trump’s removal from office by invoking the 25th Amendment of the U.S. Constitution. Speaker of the House Nancy Pelosi is expected to move on a House resolution that gives Vice President Pence 24-hours to invoke the 25th Amendment. If Mr Pence does not meet the 24-hour deadline, the House will then move to impeach the President.

Section 4 of the 25th Amendment allows the Vice-President and “a majority of either the principal officers of the executive departments or of such body as Congress may by law provide” to transmit a written declaration to the President pro tempore of the Senate and the Speaker of the House that the President is no longer fit to serve.

As of 10:18 am AST, the dollar continues its weakening ways in light of job losses …

PairsFederal Reserve as of 4 January 2021OANDA as of 4 January 2021OANDA as of 8 January 2021 10:20 am AST
GBP/USD1.36621.36331.35822
USD/CAD1.27531.27261.26927
USD/CNH6.52506.45526.45624
USD/DKK6.08396.06576.05307
EUR/USD1.22301.22641.22875
USD/INR73.010072.936773.2355
USD/MXN19.892019.838219.8122
USD/JPY103.1900103.02103.53
USD/NOK8.57578.53008.42518
USD/SEK8.20958.20918.18760
USD/CHF0.88410.88150.88217
Sources: Federal Reserve, OANDA
RatesFederal Reserve as of 4 January 2021Bloomberg as of 8 January 2021 10:51 am AST
Federal Funds Rate0.090.08
Prime Rate3.253.25
3-month Treasury0.090.08
2-year Treasury0.110.14
10-year Treasury0.931.10
30-year Treasury1.661.87
Source: Bloomberg

Legal/Regulatory/Political Events Impacting Foreign Exchange Markets

An expected dire jobs report

The U.S. Department of Labor today reported that non-farm payroll employment fell by 140,000 jobs in December 2020. The unemployment rate remained at 6.7%, the same rate as reported in December 2020. Significant losses were in the retail and hospitality sectors, according to the Labor Department. Approximately 10.7 million people are out of work.

The Africa Play …

This morning I decided to take a look at how the U.S. dollar is faring this week against the Ghanaian, Nigerian, and Kenyan currencies in comparison to the Swiss franc, Chinese yuan (offshore), and the British pound. In my opinion the United States hasn’t demonstrated that it wants to be a significant trading partner with the African continent, but with a new administration and China’s well documented economic forays on the Continent, that may change.

Pairs4 January 20215 January 20216 January 20217 January 2021Notes
CNH/KES16.787916.840516.837316.8373.3% increase in exchange rate
USD/KES108.391108.461108.500108.500.1% increase in exchange rate
GBP/KES147.768147.472147.723147.723Flat
CHF/KES122.931123.285123.497123.497.5% increase in exchange rate
Source: OANDA
Pairs4 January 20215 January 20216 January 20217 January 2021Notes
CNH/NGN59.620659.264058.808258.80821.3% decrease in exchange rate
USD/NGN384.938381.690378.964378.9641.5% decrease in exchange rate
GBP/NGN524.784518.974515.960515.9601.7% decrease in exchange rate
CHF/NGN436.578433.856431.344431.3441.2% decrease in exchange rate
Source: OANDA
Pairs4 January 20215 January 20216 January 20217 January 2021Notes
CNH/GHS0.90640.90940.90740.90740Flat
USD/GHS5.85245.85695.84735.84735Flat
GBP/GHS7.97857.96357.96127.96118.2% decrease in exchange rate
CHF/GHS6.63756.65746.65566.65558.3% increase in exchange rate
Source: OANDA

As of 9:59 an AST, foreign exchange in holding pattern as the United States watches the U.S. senate run-offs in Georgia

PairsFederal Reserve as of 4 January 2021OANDA as of 4 January 2021OANDA as of 5 January 2021
GBP/USD1.36621.36331.36329
USD/CAD1.27531.27261.27260
USD/CNH6.52506.45526.45524
USD/DKK6.08396.06576.06566
EUR/USD1.22301.22641.22636
USD/INR73.010072.936772.9367
USD/MXN19.892019.838219.8382
USD/JPY103.1900103.02103.02
USD/NOK8.57578.53008.53002
USD/SEK8.20958.20918.20912
USD/CHF0.88410.88150.88150
Board of Governors of the Federal Reserve, OANDA

Regulatory news impacting foreign exchange

None at this time…