US Federal Reserve expected to keep following upward policy

Posted 11 October, 2018

Risk demand has kept falling on Thursday. The market is facing sell-offs on all fronts. The global stock indices, oil, US dollar and US Treasuries have dropped today. Specifically, the charts show that the Shanghai composite index slumped by 5.22%, followed by Nikkei – 3.89 % down. It seems that the market experiences massive selloffs rather than traditional risk aversion. According to the market analysts, the key reason behind weaker risk demand can be softer US dollar-to-yen exchange rate. The rate has been tied with the interest rate difference, though not as tough as before.

The observed situation can be probably connected with increasing inflation in the USA. Inflation fueled by stable economic upturn will make US Fed revise the interest rate. As the market expert noted, the US Fed funding stays reduced against the point chart. Stock investors are concerned that all-time record points of yield and stocks fail to move jointly seeing overestimated the US earning power curve. Moreover, Donald Trump hardly supports the market making aggressive statements saying the US Fed is responsible for that stock market downturn. Thus, it is clear that the independent central bank is believed to play the main role in general market stability.

Previous forecast

12 October, 2018 16:40

← Yen weakening policy may go on further

This summer the US dollar-to-yen exchange rate restored ratio with the interest rates. Seeing sluggish Japanese currency, Nikkei hiked by almost 2,000 points in September. However, the yen has lost support that came from the previous upturns given the recent weakening of the sentiments towards the risk. It seems that the Japanese abeconomics no longer has a strong impact along with the general market volatility and signs of real market slackening. The Japanese economy has shown signs of a slowdown in the main sectors just after the Tankan release this September. In this situation, export orders can be the only positive news in Japan. There are some guesses in the market that Japan may revise its economic policy tools after completing its soft policy and switching to its normalization. Nevertheless, slower upturn and increased inflation indicate that the market will eventually see no changes. The fact that Shinzo Abe won the Prime Minister chair for the second term indicates that the abeconomcs will be followed further.

Yen weakening policy may go on further

Next forecast

10 October, 2018 17:40

Sterling gets some support in mid-week →

The sterling has posted gains against the US dollar in the mid-week. At present, the sterling-to-US dollar exchange rate stands at $1.3183. According to the released data, industrial production rose by 0.2% m-o-m in August (0.4% upturn in July). The processing sector recorded a 0.2% decline, while the previous forecasts covered a 0.1% upturn. Construction sector plunged by 0.7% m-o-m against the anticipated weakening by 0.4% m-o-m. As for Brexit, the Labour Party, in particular, 30-40 members, reportedly can vote for the Brexit deal, which could lend good support to UK's Prime minister Theresa May. Specifically, Theresa May has reportedly managed to win the backing of 315 MPs. However, some from this list can stand against the deal due to intraparty clashes (this is about the officials that are in May's party but disagree with her Brexit plan).

Sterling gets some support in mid-week
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