Emerging market central banks delivered just one interest rate cut in December, signalling the fading out of an easing cycle that had started in 2019 and had exceeded the cuts during the 2008 financial crisis and the 2010 euro crisis. Emerging market central bank rate cuts fade further in January | Reuters
Last Friday, the Federal Reserve Bank of New Yorkannounced that the head of its markets group, Daleep Singh, has resigned to join the Biden administration as both Deputy National Security Advisor and Deputy National Economic Advisor. This is the second prominent Biden administration choice being asked to sit in what apparently are two different policy realms: foreign and domestic. Dr. Susan Rice, who is an expert in foreign affairs, is currently Mr Biden’s assistant for domestic policy and chair of the domestic policy council in Mr Biden’s absence.
Mr Biden reportedly thinks of domestic and foreign policy as one and the same. One of the holdovers from the Trump administration is the focus on China. Mr Biden has expressed that China should expect “extreme competition” from the United States while emphasizing that there is room for accord without conflict. Mr Biden has signaled that avoiding conflict during intense competition may require falling back on existing international law.
Mr Biden’s China agenda will require buy-in from the American public. American manufacturers and farmers in particular were directly impacted by the Trump administration’s tariff war with China. Mr Biden will need a domestic policy agenda that gets Americans on board with his China initiative while crafting a policy agenda towards China that reflects benefits in the American domestic economy.
The currency portion of the foreign agenda toward China for now does not include a currency war. At the outset of her tenure Treasury Secretary Janet Yellen signaled that the US would abandon any remnant of the “strong dollar” policy favored by the Trump administration preferring instead to allow the market to determine currency rates. The dollar’s overall steady weakening in currency markets makes its domestically produced goods more attractive to foreign importers, a weakening not due to any market intervention on the part of the United States. In theory this makes domestically produced items more attractive price wise to US taxpayers and makes imports from foreign nations i.e. China, more expensive.
Secretary Yellen will be receiving direct messaging from the Executive Office of the President on China and likely on currency issues. Ms Yellen, as Treasury secretary, is a member of the National Security Council for which Mr Singh will now have a high staff role. Mr Singh has extensive experience in the area of foreign exchange having focused on U.S. interest rates and the currency markets for the better part of eight years when he was with Goldman Sachs. Secretary Yellen is also a member of the Domestic Policy Council where Dr. Rice will serve as chairman when Mr Biden is not present.
The government strategy takeaway here is to pay additional attention to the messaging from the national security council and the domestic policy council and ascertaining whether messages out of the Executive Office of the President and the Treasury Department are in sync when it comes to the US’ stance on currency markets.
Treasury Secretary Janet Yellen faces one more headache on an agenda packed with everything from Covid-19 relief to addressing inequality and overhauling tax policy: tensions over foreign-exchange intervention. Yellen Faces ‘Currency War’ Redux as Strong Dollar Ditched – Bloomberg
Apollo Currency (CURRENCY:APL) traded up 6.8% against the dollar during the twenty-four hour period ending at 13:00 PM Eastern on January 29th. Apollo Currency has a market capitalization of $13.98 million and approximately $1.63 million worth of Apollo Currency was traded on exchanges in the last day. Apollo Currency (APL) Price Up 7.5% Over Last 7 Days – Modern Readers
The Chinese yuan exhibited increased strength against the U.S. dollar. This may be due in part to decision of the People’s Bank of China to be more hawkish on interest rates and modifying the interbank market rate of the yuan to reflect tightening liquidity. (See links to two articles below).
News from the federal government …
Yesterday, the White House released the following statement addressing a call between members of the National Security Council and the European Commission:
“National Security Advisor Jake Sullivan spoke by phone today with European Commission President Ursula von der Leyen’s Head of Cabinet Bjoern Seibert. Mr. Sullivan underscored President Biden’s commitment to the transatlantic alliance and his intention to repair and revitalize the U.S.-EU partnership, including our trade and investment relationship. They discussed the importance of close U.S.-EU cooperation on the COVID-19 pandemic and global health security, as well as the global economic recovery and climate change. They also agreed to work together on issues of mutual concern, including China and Turkey.”
The value of Dogecoin, a joke cryptocurrency that launched back in 2013, hit record levels on Thursday. Its price rose by more than 800 percent, reaching around $0.082, which raised its market value to around $7 billion, according to Coindesk, which monitors cryptocurrency prices. Dogecoin Price Tracker, Update as Cryptocurrency Value Skyrockets (msn.com)
The Board of Governors of the Federal Reserve is expected to release their federal funds target rate today at 2:15 pm. No deviation is expected from its earlier announced strategy to keep the financial system running over two percent inflation through 2023 in order to meet any shortfalls on the central bank’s journey to get the US on a consistent two percent path. No change in tactic or strategy.
Currency pairs
Exchange Rate Before Event
Event
Post Event
Exchange Rate Post Event
AUD/USD
0.7666
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/CAD
1.2774
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/CNY
6.4822
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
EUR/USD
1.2075
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/INR
73.0065
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
GBP/USD
1.3689
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/JPY
104.0000
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/MXN
20.1832
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/DKK
6.1554
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/NOK
8.6452
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
Sources: Federal Reserve, Reuters
In other news ….
China's yuan inched higher
against the dollar on Tuesday, underpinned by tighter cash
conditions in domestic money markets following a spike in
short-term borrowing costs. Yuan inches higher on tighter liquidity conditions | Reuters
Focus is zeroing in when various Libor rates will expire, something ICE Benchmark Administration Ltd. is expected to clarify in the weeks ahead. Pivotal dollar Libor rates will likely live on until mid-2023, yet other Libors around the world may well expire at year-end. Libor Marks ‘Important Day’ With Partial Fix for Derivative Risk - Bloomberg
There are other crucial factors driving the price of copper higher — and grains, too — but China is a big one. China has been using its exceptionally strong currency, the yuan, to stockpile copper and grains. China is Using its Currency to Stockpile Copper and Grains | Nasdaq
The dollar’s strength has varied over various currency pairs since the Federal Reserve’s 18 January 2021 posting of currency rates. The AUD/USD increased three pips while the USD/CAD increased seven pips over the relevant period. The USD/NOK and USD/MXN also saw increases over the relevant period of 219 pips and 410 pips, respectively. The USD/JPY traded flat over the same period.
The rupee strengthened versus the dollar with USD/INR falling 143 pips over the relevant period. The Chinese yuan also strengthened versus the dollar with the exchange rate decreasing 36 pips over the relevant period.
A pip is equal to one hundredth of one percent or 0.0001.
According to the State Bank of Pakistan (SBP), the dollar today closed at Rs160.80 against the local currency as compared to Friday’s closing rate of Rs160.75. The rupee recorded a 0.03 per cent depreciation in its value. https://arynews.tv/en/pakistani-rupee-weakens-against-us-dollar-3/
The transition of Japanese yen (JPY) London interbank offered rates (Libor) to new benchmark rates risks falling behind the end-2021 deadline at the current pace of progress, which could delay the transition for legacy cash products and have an impact on interbank rate volatility. A more concerted push from regulators or industry groups may be needed if market inertia is to be overcome, says Fitch Ratings. https://www.fitchratings.com/research/banks/jpy-libor-transition-at-risk-of-falling-behind-schedule-24-01-2021
The new governor of the Saudi Central Bank faces the delicate task of balancing the need to preserve monetary reserves amid steep fiscal targets with potential support for Crown Prince Mohammed bin Salman’s ambitious investment plans, analysts said. New Saudi central bank chief may face monetary strains in investment push | Reuters
With more than a trillion euros in stimulus still in the pipeline to the economy, the European Central Bank left its key bond-purchase program unchanged Thursday as the 19-country eurozone endures a winter economic slowdown due to the pandemic. European Central Bank stimulus on track as economy struggles – ABC News (go.com)
Alton Drew 