Interbank Market News Scan: Nothing from the European Central Bank indicates the EUR-USD won’t stay flat …

The EUR-USD market …

The EUR-USD was trading around 1.1813 about 10:00 pm EST and I read nothing out of the European Central Bank this week that could impact the interbank market today.  The most recent comments out of the ECB regarding the European economy came during a speech by Isabel Schnabel, a member of the ECB’s Executive Board.

Ms Schnabel’s general assessment was that the economy is brightening for the Euro area and although Covid-19 is resurging, consumers and businesses appear upbeat about future economic performance.  Inflation, the universal economic buzzword, is at 3% per an August print, thus exceeding the ECB’s two-percent target rate.  Inflation, according to Ms Schnabel, is likely to keep growing through the end of 2021.

Meanwhile, real interest rates in Germany remain in the negative.  The rate for the ECB deposit facility is at -.50%.  This is the policy rate at which bank excess funds are deposited overnight with the ECB.  Banks, in essence, are paying the ECB to hold their excess funds.  

Contrast the ECB rate with the overnight interbank rate (fed funds rate) of the Federal Reserve which currently has a target rate of 0 to .25%. 

Ms Schnabel warned against premature tightening of rates.  She noted that while inflation may increase through the rest of the year, it may abate around the beginning of 2022.  She also cautioned that while inflation appears high, the economy is coming off of a pandemic-induced slow down and in real terms inflation is still low.

Ms Schnabel was kind enough not to use the word, “transitory.”

Otherwise, the ECB so far has been mum. So has the Federal Reserve as it gets ready for its Federal Open Market Committee meeting on September 22-23.  

Ms Schnabel’s comments also did not veer off from last week’s monetary policy decision to maintain the ECB’s €20 billion in monthly asset purchases while modifying the pace at which the ECB would make asset purchases.

Data from OANDA has the EUR-USD flat lining since 14 September but also reflecting a slight raise in the exchange rate since Ms Schnabel’s speech. While I do not expect the rate to fall below 1.1800, I don’t see an argument for now as to why the exchange rate will not continue to fall below 1.1800 by month’s end.  Like everyone else, I do not have a crystal ball.

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Interbank Market News Scan: Dollar, yuan see similar price increases in terms of Asian currencies. Euro has to play catch up.

25 August 2021

As US Vice-President Kamala Harris wraps up her Asia tour this week, I was curious to see how currency prices have moved since the Biden-Harris administration took office on 20 January 2021.  I see a battle for currency preference between the United States, the Eurozone, and China and so far, seven months into the Biden-Harris administration, the Eurozone is being left behind.

Where the dollar, the yuan, and the euro are priced in terms of the ringgit, Indian rupee, and the yen, the yuan has seen the greatest price increase since 20 January 2021.  For example, during the period 20 January 2021 to 25 August 2021, USD/JPY increased 6%; USD/MYR increased 4%, and the USD/INR increased 1.8% for an average of 3.93%.

During the same period, the CNY/JPY increased 6%; CNY/MYR increased 14%; and the CNY/INR increased 1.6% for an average of 7.2%.

Meanwhile, the euro got the least love with EUR/JPY increasing 2.9%; EUR/MYR relatively flat at 0.008%; and EUR/INR decreasing by 1.29%.  Using this bucket of Asian currencies, average euro increase is around .54%

In the immediate run, I don’t see dollar or euro prices in terms of the ringgit, yen, or Indian rupee increasing especially if Asian economies are somehow able to increase their respective economies productive capacities and increase trade with each other, taking advantage of their resource-rich environments.  The Harris-Biden administration’s fall in polling numbers as a result of perceived mismanagement of American withdrawal from Afghanistan and less than stellar campaign to get more of the American population vaccinated may likely weigh on the effectiveness of Ms Harris’ attempt to garner strategic trading partners in the region.  

Alton Drew

 For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

 Foreign exchange rates of interest as of 10:20 am EST

Currency PairFederal ReserveReuters
AUS/USD0.71330.7254
USD/BRL5.39905.2419
USD/CAD1.28531.2623
USD/CNY6.50126.4771
USD/DKK6.36126.3337
EUR/USD1.16901.1739
USD/HKD7.78977.7840
USD/INR74.350074.2250
USD/JPY109.7700109.9300
NZD/USD0.68300.6949
USD/MYR4.23854.2020
Sources: Federal Reserve, Reuters

Interbank Market News Scan: Canada sees no rush to issue a central bank digital coin …

Links you should follow ….

Foreign exchange. Luis Costa outlines commodity currencies that he is trading. This strategist outlines which currency commodities he’s trading (msn.com)

Foreign exchange. The Bank of Canada is thinking in more concrete terms about how its digital currency might look and work but it does not currently see a strong case for issuing one, a deputy governor said on Wednesday. Bank of Canada does not see currently see strong case for issuing digital currency | Nasdaq

Foreign exchange. After more than a year of slumber, investors are preparing for currency volatility to come roaring back to life. Currency FX Volatility Set for a Comeback on Looming Policy Shifts – Bloomberg

Foreign exchange. A dovish Federal Reserve and accelerating growth abroad are weighing on the dollar, a move that could be a boon for stocks and other assets. Analysis-Floundering dollar falls to bottom of global currency heap (msn.com)

Foreign exchange, cryptocurrency. ‘Bitcoin isn’t even a reliable hedge for risk-off events, let alone inflation shocks. It’s actually highly pro-cyclical…In difficult times, crypto assets don’t go up; they go down.’— Nouriel Roubini. Bitcoin isn’t a currency or financial asset, but ‘looks like a bubble’: Roubini (msn.com)

Foreign exchange rates of interest …

Changes in currency tails comprised of the euro, US dollar, and Canadian dollar and currencies out of the Eastern Caribbean, Dominican Republic, Haiti, and Jamaica remained relatively flat over the last 24 hours. Any tightening of rates on the part of major central banks is expected to have a significant impact on Caribbean currencies thus the purchasing power and cost of remittances sent back to the Caribbean.

Currency PairsRates as of 12:00 pm AST 27 May 2021Rates as of 10:45 am AST 26 May 2021
EUR/XCD3.30073.3055
USD/XCD2.70002.7000
CAD/XCD2.22492.2402
EUR/JMD182.7800181.2040
USD/JMD147.9460148.0130
CAD/JMD122.3780122.8050
USD/DOP56.479956.4454
USD/HTG88.663488.6591
Source: OANDA

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: Fed chair opines on necessity for an improved payments system and testing central bank digital currencies…

The Takeaway: Soon after issuing a statement on the fed funds rate and how warranted attention paid to rising yields should be, Federal Reserve Board chairman Jerome Powell remarked today about the need to further strengthen the global payments system with emphasis on its cross border nature. Mr Powell also provided an update on the testing of central bank digital currencies. Stakeholders in the payments system may want to pay attention to how intermediaries are treated in a central bank digital currency regime.

To see what we’re following, follow the links …

Crypto Exchanges: “Bitcoin is the most talked about cryptocurrency but Ethereum [the blockchain] has more features, including being more flexible” in its hosting of decentralized finance (DeFi) than the Bitcoin blockchain, according to Bank of America. Bank of America Sees DeFi ‘Potentially More Disruptive Than Bitcoin’ – CoinDesk

Decentralized Finance: Reputation-based lending is coming to decentralized finance (DeFi) next month with the release of Maple Finance’s “Pool Delegates” lending suite. Maple Finance Raises $1.4M for Its Reputation-Based DeFi Lending Platform (yahoo.com)

Crypto Exchanges: A number of venture capital giants have completed a financing round for Ethereum-based volatility and derivatives protocol Volmex Finance. Volatility derivatives project Volmex Finance attracts backing from VC giants (cointelegraph.com)

Crypto Prices: Bitcoin’s (BTC) price slid Thursday, retreating along with U.S. stocks and oil prices as U.S. Treasury yields touched some of the highest levels in a year. https://www.coindesk.com/market-wrap-bitcoin-loses-steam-60k-bond-yields

Yields: Rising U.S. bond yields will not hurt Asia’s emerging markets as badly as they did during the “taper tantrum” eight years ago, according to a report by S&P Global Ratings. https://www.cnbc.com/2021/03/18/asias-emerging-economies-can-withstand-rising-us-yields-says-sp.html

Central Banks: Both of the Federal Reserve and the Bank of England vowed to keep liquidity plentiful and not to taper support in the face of rising inflation until they see prolonged signs of an economic recovery. The FOMC served up a surprise with the majority of the dots flat through 2023. Both USD and GBP fell sharply after their respective central banks’ decisions before later stabilizing. Fed, BoE step back, yields push up (fxstreet.com)

Payments System: Federal Reserve chairman Jerome Powell offers remarks on improving the payments system. Closing remarks by Chair Powell at a conference hosted by the Committee on Payments and Market Infrastructures – Federal Reserve Board

Currency pairs that include top countries with foreign direct investment in the US …

The majority of foreign direct investment in the United States is held by Japan, the United Kingdom, Canada, the Netherlands, Germany, France, and Luxembourg. Since the Biden administration has taken office, the dollar-yen and dollar-euro have seen appreciation (4.9% and 1.5%, respectively), while the dollar-pound and the dollar-loonie have fallen, 2.4% and 2.3%, respectively.

Currency pair20 January 202119 March 2021Percentage change
USD/JPY103.9300108.99004.9
USD/GBP0.73450.7170-2.4
USD/CAD1.27311.2433-2.3
USD/EUR (1)0.82540.83741.5
Source: OANDA (1) The euro is the currency of France, German, and Luxembourg

18 March 2021, 9:46 pm EST

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 2:06 am AST, a week that may see impeachment so far has no impact on currencies …

PairsFederal Reserve as of 8 January 2021OANDA as of 11 January 2021OANDA as of 13 January 2021 2:06 am AST
GBP/USD1.35831.35031.3588
USD/CAD1.26981.27691.2751
USD/CNH6.47506.47826.4582
USD/DKK6.06976.11156.1137
EUR/USD1.22521.21671.2165
USD/INR73.310073.409373.2619
USD/MXN19.941020.120319.9592
USD/JPY103.8900104.1600104.1100
USD/NOK8.40748.51598.5070
USD/SEK8.20858.28078.2834
USD/CHF0.88430.88920.8893
USD/BTC0.00000.0000
USD/ETH0.00090.0009
Sources: Federal Reserve, OANDA

House votes resolution asking Pence to use 25th amendment to remove Trump

Last night the U.S. House of Representatives passed the following House resolution in its attempts to remove President Donald Trump prior to the end of his term. House Res 21 reads as following:

This resolution calls upon Vice President Michael R. Pence (1) to immediately use his powers under section 4 of the Twenty-fifth Amendment to convene and mobilize the principal officers of the executive departments to declare that the President is unable to successfully discharge the duties and powers of his office, and (2) to transmit to the President pro tempore of the Senate and the Speaker of thHouse notice that he will be immediately assuming the powers and duties of the office as Acting President.

Vice-President Pence has reportedly said that he does not intend to invoke the 25th Amendment. This means that the House will likely move to the next stage of its strategy which is to vote articles of impeachment against Mr Trump. Given the Democrats majority in the House, passage is expected.

The articles of impeachment would then move to the Senate for a trial. Indications are that, unlike last year’s attempt to remove the President from office via impeachment where a Republican-controlled Senate voted not to remove the President, there may be enough support on the part of Senate Republicans to find Mr Trump liable for “high crimes and misdemeanors”, the standard under the U.S. Constitution for removal. Senate majority leader Mitch McConnell has signaled that Mr Trump’s behavior, where allegedly encouraged supporters to march last week on the Capitol, amounted to an impeachable offense.

The establishment wing of the Republican Party, now in damage control as a result of the storming of the Capitol by Trump supporters and the resulting deaths of five people, would like nothing more than to move on from the Trump era and start laying the groundwork for the 2022 mid-term elections.

I don’t expect impeachment actions to have any bearing on pending policy actions designed to impact the economy. With only seven days left until the change in government, attempts to remove Mr Trump are designed to score political points with an electorate, a significant amount of whom believe the actions of individuals storming the Capitol amounted to an insurrection attacking the country’s representative institutions of democracy.

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.

US waits for Senate election results from Georgia; strength of US dollar against European, African currencies a mixed bag …

PairsOANDA as of 4 January 2021OANDA as of 6 January 2021Notes
USD/KES108.391108.461Dollar flat
USD/NGN384.938381.690Dollar weakening
USD/GHS5.85245.85693Dollar flat
USD/CDF1950.611950.01Dollar flat
USD/AOA648.310649.149Dollar flat
USD/ZAR14.630914.8552Dollar strengthening
Source: OANDA

Meanwhile, as the count in Georgia comes to a close, yields on longer term notes begin to increase as the Senate gets closer to a 50-50 split and the likelihood of more spending under a Biden administration ….

RatesFederal Reserve as of 4 January 2021Bloomberg as of 6 January 2021 10:30 am AST
Federal Funds Rate0.090.08
Prime Rate3.253.25
3-month Treasury0.090.08
2-year Treasury0.110.13
10-year Treasury0.931.02
30-year Treasury1.661.78
Source: Federal Reserve, OANDA

And the buzz phrase again mid-week is dollar weakening as exchange rates for a number of foreign exchange pairs continues to fall. This in light of disappointing jobs numbers from ADP where the payroll company determined that 123,000 jobs were lost in December 2020.

PairsFederal Reserve as of 4 January 2021OANDA as of 4 January 2021OANDA as of 6 January 2021 10:45 am AST
GBP/USD1.36621.36331.35967
USD/CAD1.27531.27261.27269
USD/CNH6.52506.45526.43929
USD/DKK6.08396.06576.05823
EUR/USD1.22301.22641.22774
USD/INR73.010072.936773.0696
USD/MXN19.892019.838219.9091
USD/JPY103.1900103.02102.36
USD/NOK8.57578.53008.50760
USD/SEK8.20958.20918.20299
USD/CHF0.88410.88150.87959
Source: OANDA