Central bank fiesta turns into central bank snooze-fest – Market Overview

By: Miguel A. Rodriguez

16:54, 18 September 2020

Both FED & BOE do little to nothing to influence their respective markets

As expected, the Federal Reserve left its monetary policy unchanged at the meeting held on Wednesday. 

The members of the FOMC issued almost unanimously; only two members disagreed, powerful forward guidance by which they committed to maintaining the current low-interest-rate policy and their asset purchase program at least until 2023. 

The objective of the American central bank is now focused on the recovery of the labor market without setting any specific unemployment rate, but which, according to Powell's comments, could be around the pre-crisis levels of 3.5%. 

Also, in the press conference, Powell showed a precise determination to achieve this objective regardless of the level of inflation that could exceed 2% without them modifying their monetary policy if the labor market has not reached the desired levels. 

And they will not only be attentive to the unemployment rate figure but to that of wage growth. Ultimately, the entire policy of the Federal Reserve will be focused in the future to eliminate the current high unemployment rate with sustainable wage growth.

Although this clear determination ensures very favorable financial conditions for an extended period, and this should be taken as positive by the markets, Powell said that the current situation is uncertain due to the impossibility of forecasting the evolution of the pandemic and its effect on the economy. 

He also emphasized that it will be necessary to do more to ensure a return to normalcy, pointing to the need to approve new fiscal stimulus that remains stalled in the negotiations between the two North American parties.

The fact of recognizing that the monetary policy measures that although very expansionary, are not enough and not announcing any intention to lower interest rates more or increase the volume of asset purchases caused an adverse reaction from the market.

TECH100, as in previous days, is the index hardest hit and is currently right at a critical support 10.931 that, if drilled and with a daily close below, would open the way to more significant losses with a near target in the area around 10,300.

The US Dollar, although extremely low-interest rates have a depreciating effect on its price, rose as it now behaves as a safe-haven currency in a risk-off scenario against all currencies except the Japanese Yen, which also strengthens in such situations.


BOE & GBP

GBP/USD has been pressured down today not only by the strength of the Dollar but also by the BOE meeting and its subsequent announcement. The meeting concluded without changes in its monetary policy. Still, as we pointed out in yesterday's report, a hint about negative interest rates in the future was enough for the Pound to collapse. 

The BOE literally states that "Bank of England says MPC had been briefed on the BoE's plans to explore how a negative bank rate could be implemented effectively." 

This statement raises market expectations that at the next meeting, they will decide to lower interest rates below zero if, as it seems, the conflict over the agreement to exit the European Union is not resolved, which would be a massive blow to the British economy.

GBP/USD is holding above the 100-hour SMA line at 1.2883, a close below targets the levels at 1.2828 and 1.2773 supports.


Share this article

This information prepared by capex.com/za is not an offer or a solicitation for the purpose of purchase or sale of any financial products referred to herein or to enter into any legal relations, nor an advice or a recommendation with respect to such financial products.This information is prepared for general circulation. It does not regard to the specific investment objectives, financial situation, or the particular needs of any recipient.You should independently evaluate each financial product and consider the suitability of such a financial product, by taking into account your specific investment objectives, financial situation, or particular needs, and by consulting an independent financial adviser as needed, before dealing in any financial products mentioned in this document.This information may not be published, circulated, reproduced, or distributed in whole or in part to any other person without the Company’s prior written consent.
Past performance is not always indicative of likely or future performance. Any views or opinions presented are solely those of the author and do not necessarily represent those of capex.com/zaJME Financial Services (Pty) Ltd trading as CAPEX.COM/ZA acts as intermediary between the investor and Magnasale Trading Ltd, the counterparty to the contract for difference purchased by the Investor via CAPEX.COM/ZA, authorised & regulated by the Cyprus Securities and Exchange Commission with license number 264/15.  Magnasale Trading Ltd is the principal to the CFD purchased by investors.