The U.S. Dollar is moving in mixed direction this morning following overnight central bank action that caused some swings. The Bank of Japan announced a change to its monetary policy thinking by announcing that they will control the effects of current negative interest rates and low yields instead of focusing on expanding the money supply.
The statement is a sign that the easy-money approach we’ve become accustomed to for over 5 years may come to an end after questionable results. Overall, the greenback is quiet as markets wait for the Fed at 2PM later today.
Oil and gold prices increased, meanwhile aiding the recovery of commodity-based currencies. ZAR happens to be at its strongest level in over a month, primarily rising as a result of a big beer merger in the works and success in controlling South Africa’s inflation.
Continuing the trend established for 2016, the Japanese Yen surged once again after another Bank of Japan meeting. The currency initially fell as it seemed like the BOJ would add to its stimulus as many expected, but rates were unchanged and the central bank indicated that increasing the monetary supply would no longer be the goal. Banks have suffered major losses based on narrow yields resulting from negative interest rates.
Although lending has become more affordable for business flows, inflation has not picked up and the housing sentiment worsened. Governor Haruhiko Kuroda did not dismiss the chance for increasing bond purchases in the future; however, current easing policy is being examined for its effectiveness. A Fed hike would help Japan greatly by depreciating the Yen, something that would aid in much-needed inflationary growth.
The Pound bounced back slightly overnight after some commentary from FX forecasters in regards to the UK’s patient approach to Brexit. Nevertheless, their forecast for GBP, as well as ours, is that once negotiations start Sterling will fall. Certain industries will suffer more than others, especially those with dependence on foreign direct-investment.
The new government is attempting to negotiate slowly and consider options, but European Union members are already manifesting dissatisfaction with the pace of complete detachment talks and want to prevent giving concessions to Britain in regards to market access.