Interbank market news scan: Federal Reserve lists principles for reducing its balance sheet; foreign exchange rates of interest …

Interbank, Federal Reserve. The Board of Governors of the Federal Reserve reiterated that its primary policy tool for managing the money supply, maintaining stable prices, and pursuing maximum employment is the federal funds rate, the interbank, overnight rate banks apply when lending reserves to each other. The Board will reduce its balance sheet of assets after its initial raising of the federal funds rate which markets expect to occur in March 2022. Legal advisors should keep this in mind when reviewing or counseling clients on foreign exchange contracts. To see the Board’s release, follow this link.

Interbank, US Dollar. Analysts are expecting further slippage in the euro versus the dollar given the Board of Governors of the Federal Reserve’s decision last Wednesday on interbank overnight lending rates (the federal funds rate). Analysts are seeing the EUR/USD falling to support levels as low as 1.10. Legal advisors should keep this in mind when advising clients on foreign exchange contracts. To see this article, follow this link.

Interbank, SONIA. As banks transition from LIBOR to alternative interest rate benchmarks, here is a discussion on implications from and an update on the status on making the change from LIBOR.

Interbank, European Central Bank. The ECB issues a statement on historically low number of counterfeit banknotes. Approximately 347,000 banknotes were withdrawn from circulation. To see this article, follow this link.

Foreign exchange rates of interest to Atlanta’s immigrant community

EUR/USD=1.1180

GBP/USD=1.3406

USD/MXN=20.7530

USD/GTQ=7.5208

USD/NGN=414.8790

USD/GHS=6.1895

USD/VND=22,633.9000

USD/JPY=115.0500

USD/INR=75.1226

USD/BTC=0.00003

USD/ETH=0.00041

Source: OANDA

European Central Bank sees growth moderating in 2022

The Interbank

The European Central Bank today released its update on economic, financial, and monetary developments. The ECB sees growth moderating into 2022 primarily due to supply bottlenecks.  Global supplier delivery times remain high as food and energy upward price pressure remains in place.  These pressures reflect a rebound from the low-price environment spawned by the pandemic.

While the ECB credits higher vaccination rates for the support of increased consumer spending, higher energy prices may be offsetting the increase in spending.  Shortages of materials, equipment, and labor is holding back manufacturing.  And on the labor front, the number of people in the workforce and hours worked still remain under pre-pandemic levels.

EUR/USD is currently trading at $1.1468.

Traders interested in the full report should go to https://www.ecb.europa.eu/pub/economic-bulletin/html/eb202107.en.html.

The Bank of Mexico maintained its overnight target rate at 4.75%.  No written statements by the Bank have been released at the time of this writing.

MXN/USD is currently trading at $20.5698.

Regulatory News

No major regulatory events impacting traders or broker-dealers this morning.

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

Alton Drew

11.11.2021

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: The ECB philosophy behind a central bank digital currency …

Interbank, European Central Bank. Fabio Panetta, member of the executive board of the European Central Bank, presented on the feasibility and deployment of a central bank digital currency.  The main goal of a central bank digital currency, according to the presentation, should be to maintain “public access and full usability of central bank money in a world where consumers and firms are turning increasingly toward electronic payments.”

Of interest to foreign exchange traders in regards to a central bank digital currency is the central bank’s concern about maintaining the convertibility of private money to central bank cash, future cross-border, cross-currency possibilities including making cross-border payments easier.

Since central bank digital currencies are still in the nascent stage, especially in the United States, the concerns and possibilities are still a way off but should be on the minds of currency traders.

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

Interbank, Federal Reserve. Federal Reserve System governor Michelle Bowman warned of housing market generated inflation yesterday during remarks before a Women in Housing and Finance public policy luncheon.  Governor Bowman noted significant increases in home prices since 2020 as well as increased prices in the rental markets.

Foreign exchange traders should take note of the temporal nature of inflation overall.  Governor Bowman notes that shortages in labor, land lots, and materials have been fueling housing supply and likely supporting the higher prices being seen in the markets.  Because housing is a large component of the American economy, higher housing prices are fueling inflationary pressures.  But while Governor Boman did not use the term “transitory”, her remarks did introduce at least two factors that may limit the duration of higher prices: the aforementioned supply issues and the expiration of forbearance on mortgage payments.  Traders should be aware that as supply constraint on labor and material evaporate, increases in housing supply may drive down prices in the longer run.  Also, the expiration of forbearance and other stimulative measures may result in lower housing prices as well.

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

9.11.2021

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

Interbank Market News Scan: Dipping my toes into the USD-JPY market

For the past week or so I have been trading the binary options in the GBP-USD market.  I focused on this market primarily because the US and UK sessions intersect during the first few hours of the American session allowing me some time to do some reading and research before making a trade.  Time spent on another project, however, meant missing the opportunity to trade during those sessions, so I decided to dip my toes into the Asian session.

I admit to having had some hesitancy toward trading during the Asian session.  I am less familiar with Japanese monetary policy and the yen.  Their central bankers get a lot less play in the business media than central bankers at the Federal Reserve, European Central Bank, or the Bank of England which means reduced insights into Japanese monetary policy.  But I find that there is upside that can result from fear: the ever-present opportunity to learn.

The first stop in taking an opportunity to learn included a visit to the Bank of Japan’s website where I identified data on the BOJ’s overnight bank rates.  I then compared these rates with the overnight bank rates of the Federal Reserve.   Banks with accounts at the Federal Reserve are getting much better rates than those with accounts at the BOJ.

The business media has been reporting on Japan’s sub-zero rate policy for years, heck decades, so there was no surprise on my part when Bloomberg data showed the wide difference in rates between the U.S. and Japan.  The 150-point spread between U.S. 10-year government bonds and Japanese 10-year government bonds supported in my mind opportunities for those holding yen to move to the dollar thus increasing dollar demand and driving up the exchange rate between the two currencies.

Business media, in my opinion, paints the USD-JPY pair as volatile which I guess can cause some trepidation for traders trying to guess where the exchange rate is going to go.  I am growing increasingly suspect of most business media.  I see them more as purveyor of narrative instead of distributor of fact.  They are as noisy as their political media cousins and contribute to the noise and trepidation I mentioned earlier.

Fortunately, there are outlets such as Daily FX and FX Street that provide analysis that cuts through the noise. Using analysis from these outlets I was able to establish a probable floor of USD-JPY=112.00 and a probable ceiling of USD-JPY=113.50, betting that during a four-hour contract the exchange rate would exceed 113.20 prior to the contract’s expiration.

My biggest takeaway from last night’s trade was one should not allow fear and lack of knowledge to limit the opportunity to profit.  Seek out good information sources and pursue a path of knowledge.  Knowledge helps to process out the fear.

Alton Drew

12.10.2021  

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.

Please support my efforts by making a donation via PayPal or visiting our advertisers.  Also, share with me what you think about the above analysis. The more info, the better.

Interbank Market News Scan: Eastern Caribbean, foreign exchange …

10 June 2021

Eastern Caribbean Securities Exchange

Today, the Eastern Caribbean Securities Exchange reported that the following securities were exchanged on 9 June 2021:

800 East Caribbean Financial Holding Company Ltd shares traded at $4.00 per share, falling $.48, or 10.71%, from its previous price;

3,500 S.L. Horsford & Company Ltd shares traded at $2.00 per share with no change from yesterday’s price;

1,298 TDC shares traded at $1.25 per share, down 3.85% from its previous price; and

80 shares of Cable & Wireless St.Kitts & Nevis Ltd traded odd lot at $3.65 per share.

 On the Regional Government Securities Market, the Government of Antigua and Barbuda’s 365-day Treasury bill auction raised $10 million with a discount rate of 4.30622%.

Scheduled for today, the Government of the Commonwealth of Dominica is expected to auction 91-day Treasury bills at EC$20 million at a maximum rate of 5%.

Source: Eastern Caribbean Securities Exchange

Eastern Caribbean Central Bank

The Eastern Caribbean Central Bank recently announced that DCash, the digital version of the Eastern Caribbean dollar (EC), is set to go live in Saint Vincent and the Grenadines by the end of June.  According to the ECCB:

“The immediate objective of launching DCash in Saint Vincent and the Grenadines is to allow for the exchange of DCash for physical cash via the DCash Merchant-Teller network. These authorised entities will facilitate DCash to physical cash exchanges, thereby allowing faster, safer and cheaper cross-border person-to-person remittances. Emphasis will also be placed on establishing the DCash merchant network with focus on getting essential service providers DCash-ready. In addition, other DCash users will be able to send funds directly to users in SVG.”

Since 31 March 2021, the countries of St.Kitts-Nevis, St. Lucia, Antigua and Barbuda, and Grenada, have been using DCash.

Source: Eastern Caribbean Central Bank

European Central Bank

Today, the European Central Bank reported no change in its accommodative approach to stimulating the European economy.  The ECB will maintain the rates for its main refinancing operations at 0%; its marginal lending facility at .25%; and its deposit facility at -.50%. 

The ECB indicated in its statement that there will be acceleration of asset purchases under the Pandemic Emergency Purchase Programme (PEPP) at a total of EUR1,850 billion through March 2022.  The ECB hopes to balance purchase of assets and reinvestment of proceeds from the assets in such a way as to move as close to a two percent inflation point without exceeding that level.  Net monthly purchases under PEPP are expected to be maintained at EUR 20 billion through 2022.   

Source: European Central Bank

Foreign exchange rates of interest…. 

Source: OANDA

Currency PairsRates as of 11:30 am AST 10 June 2021Rates as of 10 June 2020Change in rates
XCD/EUR0.30400.3275(7.2%)
XCD/GBP0.26180.2915(10.2%)
XCD/USD0.37040.3704flat
XCD/CAD0.44810.4970(9.8%)
XCD/NGN152.4650143.05106.6%
XCD/CNY2.36632.6215(9.7%)
XCD/PLN1.35671.4530(6.6%)
XCD/PEN1.44281.257714.7%

Interbank market scan: Lagarde sees holding crypto as “unlikely.” Central Bank of Nigeria explains “no to crypto.” India pursues crypto law

Follow the links …

European Central Bank President Christine Lagarde on Wednesday said she didn’t consider bitcoin to be a real currency, adding that central banks won’t be holding it as reserve currency anytime soon. ECB president Christine Lagarde says it’s ‘very unlikely’ that central banks will hold bitcoin in the near future (msn.com)

Following its ban on cryptocurrency-related transactions in the country, the Central Bank of Nigeria has explained why it was done. CBN  boss disclosed that the digital currency is used for money laundering and terrorism. CBN explains why cryptocurrency transactions were banned (withinnigeria.com)

Kingsley Moghalu, former deputy governor of the Central Bank of Nigeria (CBN) has condemned the apex bank’s reason for stopping cryptocurrency transactions in the country. Moghalu condemns CBN’s reason for banning cryptocurrency transactions (withinnigeria.com)

On Tuesday (February 9), minister of state for finance Anurag Singh Thakur said that a cryptocurrency bill was being finalised and it would be sent to Union Cabinet soon. Cryptocurrency bill: Here’s what you need to know (msn.com)

Are central banks on the verge of a currency war with the U.S? Global central bank interventions raise specter of ‘currency war’ | Morningstar

“Bitcoin needs a couple more big endorsements, and that could be the key to take prices above the $50,000 level,” Edward Moya, senior market analyst for the foreign-exchange broker Oanda, wrote Tuesday.  First Mover: As Wall Street Fixates on Inflation Hedges, Good Luck Finding Bitcoin | Nasdaq

Bitcoin ‘can’t be stopped’: Nigerians look to peer-to-peer exchanges after crypto ban. Some Nigerians plan to continue using bitcoin and other cryptocurrencies despite a directive issued by the Central Bank of Nigeria last week ordering banks to close down accounts associated with cryptocurrencies. First Mover: As Wall Street Fixates on Inflation Hedges, Good Luck Finding Bitcoin | Nasdaq

The Federal Reserve Board on Tuesday announced the second extension of a rule to bolster the effectiveness of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). Like the earlier extensions, this one will temporarily modify the Board’s rules so that certain bank directors and shareholders can apply to their banks for PPP loans for their small businesses. Federal Reserve Board – Federal Reserve Board announces the second extension of a rule to bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program (PPP)

Currency pairsExchange Rate as of 4:15 pm 8 February 2021 As of 1:00 pm EST Exchange Rate as of 10 February 2021
AUD/USD0.7656 0.7727
USD/CAD1.2781 1.2690
USD/CNY6.4664 6.4576
EUR/USD1.2035 1.2134
USD/INR72.8500 72.8500
GBP/USD1.3714 1.3841
USD/JPY105.4400 104.6600
USD/MXN20.1300 20.0543
USD/DKK6.1785 6.1317
USD/NOK8.5428 8.4504
Sources: Federal Reserve, Reuters

10 February 2021

Interbank market news scan: Central banks, foreign exchange; cryptocurrency …

In the news …

According to preliminary statistics, outstanding aggregate financing to the real economy (AFRE) reached RMB289.74 trillion at end-January, increasing 13 percent year on year. Report on Aggregate Financing to the Real Economy (Stock) (January 2021) (pbc.gov.cn)

According to preliminary statistics, the aggregate financing to the real economy (AFRE) (flow) was RMB5.17 trillion in January 2021, up RMB120.7 billion year on year (y-o-y). Report on Aggregate Financing to the Real Economy (Flow) (January 2021) (pbc.gov.cn)

Consolidated financial statement of the Euro System. Consolidated financial statement of the Eurosystem (europa.eu)

The European Central Bank (ECB) announces today that it will begin publishing aggregate results of its Survey of Monetary Analysts (SMA) in June 2021. The survey, an ECB staff-level exercise, collects information on market participants’ expectations about the future evolution of key monetary policy parameters, financial market variables and the economy. The survey runs eight times a year and is aligned with the six-week schedule of the monetary policy meetings of the Governing Council. ECB to publish results of the Survey of Monetary Analysts (europa.eu)

The Bank and FCA held a consultation with FMIs and reviewed their co-operation regarding market infrastructure – seeking in particular feedback on how the authorities had co-operated during the Covid market events of Spring 2020. The authorities concluded that the MoU’s arrangements for co-operation remain effective, with appropriate co-ordination and no material duplication. Industry respondents acknowledged the efforts made on co-operation and the Bank and FCA remain committed to effective co-operation. Update on Bank of England and Financial Conduct Authority Memorandum of Understanding on the supervision of market infrastructure and payment systems | Bank of England

Reserve Bank of Australia releases official reserve assets picture. Official Reserve Assets – January 2021 | RBA

10 February 2021, 4:08 am EST

Interbank market scan as of 9:27 pm AST: central banks, cryptocurrency, foreign exchange

Currency pairsExchange Rate as of 11:07am AST 28 January 2021Exchange Rate as of 10:11 pm AST 31 January 2021
AUD/USD0.76810.7639
USD/CAD1.27741.2781
USD/CNY6.48226.4250
EUR/USD1.21181.2130
USD/INR73.050072.8770
GBP/USD1.37151.3714
USD/JPY104.0600104.6500
USD/MXN20.700020.4010
USD/DKK6.15546.1323
USD/NOK8.62428.5628
Source: Reuters

Australia only recently started its quantitative-easing program, yet the key question already confronting the central bank is when and how to taper bond purchases given the strong economic recovery. Australia Central Bank Faces Taper Quandary as Peers on Hold – Bloomberg

Dogecoin, a Shiba Inu-themed digital coin that started as a joke and became the latest obsession for retail traders this week, plunged almost by half Saturday, sparking a flurry of posts on Reddit and Twitter begging coin holders not to panic sell. Dogecoin Plunges After Rally, Sparking Outcry on Reddit – Bloomberg

The European Central Bank’s chief economist Philip Lane played down the prospect of the ECB buying stocks or bank bonds as part of its pandemic-fighting efforts, saying in a newspaper interview published on Sunday these were not in its toolbox. ECB’s Lane says stocks, bank bonds not in toolbox: paper | Reuters

Cutting the UK’s official interest rate below zero would fail to boost Britain’s Covid-stricken economy because lenders would increase mortgage costs in response, the Bank of England has been told. Negative interest rates would not help Covid economy, Bank of England told (msn.com)

Bitcoin prices on Indian crypto exchanges fell 7-8% on Sunday afternoon after the government announced it would introduce India’s cryptocurrency bill in the budget session of the Parliament. https://economictimes.indiatimes.com/tech/tech-bytes/crypto-community-panics-on-news-of-pvt-currencys-exit/articleshow/80620693.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

31 January 2021