- The US dollar recovers lost ground while investors consider the durability of the truce in the Middle East.
- The summary of Boj’s opinions generates doubts about the upcoming rates of rates.
- The hopes of fed cuts in the second half of the year are weighing on the recovery of the US dollar.
The US dollar was strengthened on Wednesday, while the market reflects on the durability of the high fire in the Middle East, while the Yen fell on all fronts since the summary of Boj’s opinions suggests that the bank could leave its monetary hardening plans in the drawer for some time.
The appetite for the risk observed on Tuesday after the truce between Israel and Iran has softened on Wednesday. A US intelligence report indicated that Tehran’s plans to enrich Uranium have been delayed only a few months, instead of being “annihilated” as President Trump said, which has left investors asking about the durability of the high fire.
Beyond that, the summary of opinions of the last meeting of the Bank of Japan revealed that the uncertainty on the impact of Trump’s tariffs caused divergence among those responsible for the policy, which will probably delay the monetary hardening plans of the bank.
The hopes of fed cuts are still alive
Those responsible for the Boj’s policy showed growing concerns about high economic uncertainties and upward risks and asked to maintain accommodating policy for some more time. A member considered that the bank should continue to increase rates despite the uncertain context.
In the US, the president of the FED, Jerome Powell, reaffirmed his position of “waiting and seeing” despite the pressures of President Trump to cut rates.
However, the weak consumer’s feeling data published shortly after cemented the hopes that the bank will cut the rates twice this year, which will probably maintain moderate US dollar rise attempts.
FAQS Central Banks
Central banks have a key mandate that consists in guaranteeing the stability of prices in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant decrease in the prices of the same goods means deflation. It is the Central Bank’s task to keep the demand online by adjusting its interest rate. For larger central banks, such as the US Federal Reserve (FED), the European Central Bank (ECB) or the Bank of England (BOE), the mandate is to maintain inflation about 2%.
A central bank has an important tool to raise or lower inflation: modify its reference interest rate. In precommunicated moments, the Central Bank will issue a statement with its reference interest rate and give additional reasons of why it maintains or modifies it (cut it or the SUBE). Local banks will adjust their savings and loan rates accordingly, which in turn will make it difficult or facilitate that citizens obtain profits from their savings or that companies ask for loans and invest in their businesses. When the Central Bank substantially rises interest rates, there is talk of monetary hardening. When it reduces its reference rate, it is called monetary relaxation.
A central bank is usually politically independent. The members of the Central Bank Policy Council go through a series of panels and hearings before being appointed for a position in the Policy Council. Each member of that council usually has a certain conviction on how the Central Bank should control inflation and the consequent monetary policy. Members who want a very flexible monetary policy, with low types and cheap loans, to substantially boost the economy, while comprising with inflation slightly greater than 2%, are called “pigeons.” Members who prefer higher types to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is located at 2% or just below.
Normally, there is a president who directs each meeting, has to create a consensus between the hawks or the pigeons and has the last word when the votes must be divided to avoid a draw to 50 on whether the current policy must be adjusted. The president will pronounce speeches, which can often be followed live, in which he will communicate the current monetary position and perspectives. A central bank will try to boost its monetary policy without causing violent oscillations of the fees, the actions or their currency. All members of the Central Bank will channel their position towards the markets before a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, the members are prohibited from speaking publicly. It is what is called a period of silence.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
