Foreign exchange rates of interest to Atlanta …at 9:35 am

GBP/USD=1.3614

EUR/USD=1.1371

USD/NGN=414.068

USD/GHS=6.2051

USD/JMD=153.246

USD/JPY=114.653

USD/INR=74.4012

USD/MXN=20.3583

USD/WON=1,190.77

USD/GTQ=7.5322

Source: OANDA

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.

Foreign exchange rates of interest to Atlanta. Rupee, peso, and dong see some strength.

USD-MXN=20.7538

The Mexican peso has been strengthening against the U.S. dollar since 25 November 2021where the USD-MXN currency pair exchange rate fell from approximately 21.5600 to 20.7538 as of 2 January 2022. Mexicans make up the largest group of foreign-born Georgians, according to the site DataUSA.

USD-INR=75.5300

The Indian rupee has been strengthening against the US dollar since 15 December 2021 where the USD-INR currency pair exchange rate fell from 76.3600 to 75.5300 as of 2 January 2022. Indians make up the second largest group of foreign-born Georgians.

USD-VND=22,838.0

The Vietnamese dong has been strengthening against the US dollar since 7 December 2021 where the USD-VND currency pair exchange rate fell from 23,066.7 to 22,838.0. Vietnamese make up the third largest group of foreign-born Georgians.

Alton Drew

2.01.2022

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.

Contracting out the circulation of the U.S. political economy’s currency … and the never-ending threat of intervention

Article I, Section 8 of the United States Constitution describes Congress’ duty to regulate money.  Specifically, Congress has the duty to:

“Coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures…”

While the government has maintained the responsibility of minting coin and cash, the regulation of its value as well as that of foreign coin, is left up to the markets.  I am curious, though, as to how the law defines, “money”, “coin”, and “currency.”

A quick and dirty Black’s Law Dictionary definition of “currency’ is coined money and such banknotes or other paper money as are authorized by law and circulates as a medium of exchange.  31 CFR § 1010.100 defines currency as:

“The coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance. Currency includes U.S. silver certificates, U.S. notes and Federal Reserve notes. Currency also includes official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country.”

In the United States, the US Treasury and the Federal Reserve System source the currency.  They are the “farmers’ of the commodity we call currency.  According to Federal Reserve data, as of October 2021, there is approximately $2202.9 billion of currency in circulation.  When you factor in currency held in reserve at the Federal Reserve, the total monetary base of the United States as of October 2021 is approximately $6331 billion. 

The banks that the Treasury and the Federal Reserve charter and regulate participate in the interbank market, the market in which foreign exchange rates for currency is set.  I like to think of these banks as the wholesale/retail enterprises that are responsible for circulating currency, transmitting the value of the US political economy globally.  While I believe the US government could technically set these rates itself, the capitalist economic policy implemented by the US government prefers private institutions carry out this mission.

I would think that wholesale (bank) and retail traders and brokers prefer this model because they determine the share of income (profit) garnered via foreign exchange.  Because the Treasury and the Federal Reserve are the “farmers” of the currency and are primarily held responsible by the Congress for the day-to-day valuation of the currency, traders and brokers should stay mindful that the cloud of potential government intervention in the market always looms.

Keeping the dark cloud of potential intervention into the foreign exchange market dispersed can only occur via constant monitoring and initiatives to keep government at bay.  That is the trader and broker’s daily call to action.

Alton Drew

24.11.2021  

Interbank Market News Scan: Bank of England to announce interest rate targets today

Interbank, central bank, Bank of England. At 12 pm GMT (8:00 am EST), the Bank of England (BOE) releases its monetary policy report today including its target interest rates.  The current bank rate is set at 0.1%.  The bank rate determines the interest rates the BOE pays to commercial banks which in turn impacts rates paid by commercial bank borrowing customers.  This rate is important to traders because it provides valuable information that can be used to determine changes in inflation and yields on government bonds which in turn provides the trader with insights as to where foreign exchange rates will move.  

The BOE’s current inflation target is 2.0%, but actual inflation is running at 3.1%.  Since November 2009, the BOE has purchased £895 million in corporate and government bonds as part of its quantitative easing program.  QE is intended to help lower interest rates and stimulate growth in the British economy.

Traders should contact their brokers for more information on how BOE’s interest rates decision may move foreign exchange rates.

Interbank, central bank, Federal Reserve.  Yesterday, the Board of Governors of the Federal Reserve System announced that its federal fund and discount window rate target would remain between 0-.25%. In addition, the Federal Reserve will begin to reduce later this month its monthly purchases of US Treasury bonds and agency mortgage-backed securities.  It will reduce its monthly purchase of US Treasurys from $80 billion to $70 billion.  It will reduce its monthly agency mortgage-backed securities from $40 billion to $35 billion.

The Federal Reserve asset purchases were designed primarily to keep interest rates and stimulate the economy during the COVID pandemic.  As more Americans are vaccinated and the negative impact of the supply chain congestion wanes, the Federal Reserve is seeing more reasons to trim its asset purchases.

The Federal Reserve has made it clear that the decision to taper asset purchases and the decision to raise the federal funds rate are separate issues.  If, however, the taper policy was implemented to stimulate the economy by keeping interest rates low, traders should expect upward movement in interest rates as a result.  Increased interest rates may have an impact on the direction of foreign exchange rates regardless of a Federal Reserve decision to increase the fed funds rate.

Traders should contact their brokers for more information on how the Federal Reserve’s fed funds rate and tapering decisions may move foreign exchange rates.

Alton Drew

4.11.2021

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: I bet on the AUD-USD last night…

Last night, I bet on an increase in the AUD-USD exchange rate after reading analysis that the currency pair was seeing resistance around 0.7500 USD with lows between .7440-.7480 USD. While inflation in Australia is lower than in the United States (3.8% vs 5.4%), what helped tip me to the buy side was the higher yield on Australian 10-year government bonds (1.76%) versus the United States 10-year (1.63%).

Bank rates in Australia are slightly lower which tells me that their banks have a little more incentive to lend, which they may need given an expected slow retraction in inflation with expectations at 3.1%.

Meanwhile in the United States, Treasury secretary Janet Yellen and Federal Reserve chair Jerome Powell expect inflation concerns to dissipate next year.

Personally, I suspect that if there is any inflation it will be in certain areas of the labor market. I believe businesses with any vision will put in place labor work arounds where they will not require people to come into offices. Professional, “creative” type employees will be able to demand higher salaries while low wage earners will drive down earnings as they compete with more low-wage, unskilled workers.

Back to Australia, again, expect the inflation print tonight. I will be listening to how other central banks react. The news may temper the level of rate hikes they put in place. Just a thought …

Alton Drew

26.10.2021

Interbank Market News Scan: Trading within your time reality

Beginning traders are told time and time again to keep their emotions out of a trade.  It is nerve racking to sit in front of a screen and watch Japanese candles change in color, width, and height as you second guess your trade.  It makes no sense torturing myself like that.  It tells me that I am questioning my homework or lack thereof and if that is the case, I need to work a little harder on analyzing all available data before I pull the trigger on a trade.

Making the above observation, I see why it is important to keep your trading plan and trade journal handy.  Your plan keeps you grounded and disciplined. You put time and thought into writing it. You may as well follow it, knowing that as you amass more experience and knowledge that eventually the plan will be modified. In the meantime, however, like any good athlete, you don’t want to make any changes in the game plan while in the heat of battle.  In the heat of battle is not the time to practice.

When it comes to time constraints, for those of us who are funding our trading desks ourselves, getting out of our comfort zones and trading in sessions that are not in our time zones is a “blessing.”  As I shared in my last blog post, I dipped my toes in the Asian session by trading the dollar-yen for the first time.  My business trade during the day influences when I can do my day trade in binary options.  Taking advantage of the 24/5 nature of the foreign exchange markets means there is always an opportunity to make a return. 

Alton Drew

19.10.2021

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: The Bank of Canada held its policy rate today, but I was nervous about USD-CAD

The Bank of Canada today held its policy rate at .25% citing the effectiveness of its quantitative easing program which is currently comprised of asset purchases of CAD 2 billion a week. While seeing a recovery in its economy, Covid-19 and supply chain disruptions were noted as the usual suspects for dampening of economic growth in certain sectors.

The Bank noted contraction in its export sector, in particular its auto industry with consumption, business investment, and government spending contributing to Canada’s economy.  Inflation is running around 3.7%, much hotter than its 2% target.

From a yield and inflation aspect, I could not see why Americans would want to move dollars into Canada’s economy.  Granted U.S. inflation, at 5.4% over the last 12 months, is running hotter than inflation in Canada.  However, according to data from Bloomberg, ten-year treasury yields are higher in the U.S. (1.35%) than they are in Canada (1.21%).

Yesterday, data from Reuters showed the USD/CAD closing around 1.2621 and I quite frankly thought (in my gut) that the exchange rate would decrease by 11:00 am EST but decided to hold out for the Bank of Canada narrative on rates.  I did not see much change in this report versus last month’s monetary policy release.  I also did not see any calls for changes in monetary policy which added support, in my opinion, to an expected increase in USD/CAD.

The takeaway for me is there is nothing wrong with listening to your gut but always challenge the feeling with data and vice versa. 

Please feel free to share thoughts on central bank decisions and foreign exchange.  

Happy Star Trek Day!

Alton Drew

8 September 2021

Please support my efforts by making a donation via PayPal or visiting our advertisers.

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