Switzerland’s Central Bank Is Stomaching Stronger Franc For Now

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Sight deposits at the Swiss National Bank increased only marginally last week, suggesting President Thomas Jordan and his colleagues aren’t taking much action to counter the strengthening franc.

Iran-U.S. tensions and fears about the spreading Coronavirus has lifted the haven franc this year. Earlier on Monday, it breached the 1.07 per mark to touch a fresh three-year high.

Yet total sight deposits rose just 0.22% to 587 billion francs ($ 605 billion) in the week ending Jan. 24, central bank figures show.

While there’s been no evidence of interventions recently, the threat of action remains remains alive. SNB President Thomas Jordan told Bloomberg Television last week that the pledge to sell the franc if needed remains in place alongside the central bank’s record-low interest rates.

Last week, euro-area officials expressed optimism over signs of economic stabilization, citing easing global trade tensions and a mildly expansionary fiscal policy. UBS Group AG reversed its call for an SNB rate cut in March.

“The SNB is tolerating a bit stronger franc, maybe also because the economic environment is looking a bit better,” Credit Suisse (SIX:) Group AG economist Maxime Botteron said.

Responding to a U.S. decision to add Switzerland back on its watch list for currency manipulators, Jordan said the SNB was only looking to stave off deflationary conditions with its purchases of foreign currency.

He also said the SNB had the room to further cut its deposit rate, now at -0.75%,

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Forex – Dollar Calm; Focus on Emerging Central Banks

© Reuters.  © Reuters.

Investing.com – The U.S. dollar is largely unchanged in European trade early Thursday, as a degree of calm prevails following the signing of the Sino-U.S. trade deal.

At 03:25 ET (0825 GMT), the traded at $ 1.1155, up 0.1%, while stood at $ 1.3046, up 0.1%. The traded at 110.05 yen, up 0.1%. The , which tracks the greenback against a basket of developed market currencies, was down 0.1% at 96.910.

That signing of the much-anticipated phase one trade agreement between the U.S. and China should draw a line under 18 months of tit-for-tat tariff hikes that have hurt global growth.

The signing should result in a calmer market in 2020 from at least one point of view, although underlying tensions between the U.S. on the hand and Europe and China on the other still remain.

“The U.S.-China deal implies that the amount of uncertainty related to trade war declines significantly in the short-term,” according to a research note from Tuuli Koivu at Nordea. “We assume that after having achieved the phase one trade deal with China, Trump will not take huge risks when running for president at the November elections.”

Looking elsewhere, the South African central bank holds its latest rate setting meeting at 8:00 AM ET (13:00 GMT). The bank is widely expected to hold its key repo rate unchanged at 6.5%. That said, the last meeting in November showed a split between the members, with three of the five members voting to hold, while two favored a cut.

Turkey’s central bank also meets Thursday to decide on interest rates, having slashed borrowing costs in half from 24 percent in July. Thirteen of 21 economists surveyed by Reuters predicted another rate cut, with six expecting the bank to lower interest rates by 100 basis points to 11 percent. Some analysts argue that that would leave Turkish real interest rates too low, given that inflation has rebounded to nearly 12% in the last couple of months.

At 03:25 AM ET (08:25 GMT), the traded at 14.3906 rand, and the at 5.8887 lira.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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Room is limited for further RRR cuts in China: central bank official

BEIJING (Reuters) – China’s reserve requirement ratio (RRR) is at appropriate level and there is limited room for further cuts, a central bank official said on Thursday.

China will make timely adjustments to benchmark deposit rates, and should pay more attention to changes in real interest rates when discussing whether to cut interest rates, Sun Guofeng, head of monetary policy department of the People’s Bank of China told a news briefing in Beijing.

Real interest rates have been falling significantly and funding costs for small firms also declining, Sun added.

The PBOC has cut RRR eight times since early 2018, including one earlier this month, to help shore up the cooling economy. Analysts have forecast more this year.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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Thai central bank says ready to curb resilient baht if needed

By Kitiphong Thaichareon and Orathai Sriring

BANGKOK (Reuters) – Thailand’s central bank is still concerned about the strength of the baht and is ready to take further action if necessary, a deputy central bank governor said on Tuesday.

The baht’s gains have been driven by the country’s large current account surplus, and not speculation in the currency, Mathee Supapongse told a news briefing.

“We have a lot of weapons ready, but there is no speculation from foreign investors yet,” he said, adding the central bank was monitoring the market closely.

As Asia’s best performing currency in 2019, the baht rose nearly 9% against the dollar, putting more pressure on the export-dependent economy amid global trade tensions and markets are concerned the authorities will introduce capital controls, among other steps.

The baht traded at 30.24 per U.S. dollar at 0510 GMT.

Rising international reserves show the Bank of Thailand (BOT) has closely managed the baht by buying dollars, Mathee said. The reserves increased by $ 18 billion to $ 223 billion in 2019.

“If the BOT had not intervened, the reserves would not have risen and the baht may have been stronger than this,” he said.

But the central bank is mindful of side-effects and limitations of currency intervention, as it may face trade protagonist measures from other countries, he said.

On Monday, the U.S. Treasury said Thailand was close to triggering thresholds to be added to its currency monitoring list.

Mathee also said quantitative easing was not suitable for Thailand due to very high liquidity and it would largely benefit certain business groups.

The central bank will further relax rules to spur outbound investment to help ease upward pressure on the baht, he said.

Last year, the BOT introduced steps against short-term speculative inflows and relaxed rules to spur fund outflows in a bid to curb the baht’s strength.

In November, the central bank said within the next three months the limit exporters can keep proceeds abroad will be raised to $ 1 million per lading bill from $ 200,000 currently. Such proceeds account for about 80% of all exports.

While the baht’s appreciation has affected the economy by hurting export competitiveness, it has benefited importers and companies and individuals with foreign debt, he added.

The central bank has forecast Southeast Asia’s second-largest economy will expand 2.8% this year after growing by an estimated 2.5% in 2019, a five-year low.

(GRAPHIC: Thailand’s GDP, exports and consumption – https://fingfx.thomsonreuters.com/gfx/mkt/13/367/367/Thailand’s%20GDP,%20exports%20and%20consumption.png)

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Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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US to Iraq: Kick out our military and we will seize your central bank accounts

US puts the petrodollar at risk

US puts the petrodollar at risk

The US warned Iraq that if it kicks American forces out of the country, it would lock the country out of its central bank accounts held at the New York Fed.

Iraq uses the account to settle oil sales of oil and other international transfers.

Iraq’s elected legislature voted last week to expel US troops who were invited to the country to fight ISIS in 2014. The Prime Minister moved forward with those plans this week in a call with Secretary of State Mike Pompeo.

The threat may spark a shift away from US dollar use and pricing in the international oil trade. It could also cause other countries to reconsider keeping money or other financial assets in the United States.

An adviser to the prime minister, Abd al-Hassanein al-Hanein, said that while the threat of sanctions was a concern, he did not expect the U.S. to go through with it. “If the U.S. does that, it will lose Iraq forever,” he said.

In its most-recent disclosures from end-2018, Iraq’s central bank said it held $ 3 billion in overnight deposits at the NY Fed.

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Lebanon central bank head: ‘nobody knows’ how much pound could weaken

BEIRUT (Reuters) – Lebanon’s central bank governor said on Thursday “nobody knows” how much more the cost of dollars could rise on the black market in a country suffering its worst economic crisis in decades.

The Lebanese pound, pegged to the dollar for 22 years, has slumped by more than 30% on the parallel market, now the main source of hard currency as banks impose tight controls.

“We hope the country itself will improve so that the economy can improve,” Central Bank Governor Riad Salameh told reporters on Thursday. Asked how much higher the cost of dollars would rise, he said “nobody knows”. He did not elaborate.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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Poland’s president appoints new central bank policymaker

WARSAW (Reuters) – Poland’s President Andrzej Duda on Friday appointed his former adviser Cezary Kochalski to the country’s Monetary Policy Council (MPC) to replace one of the few remaining hawks on the panel that has held rates steady since 2015.

Kochalski joins the MPC at a time of unprecedented stability in monetary policy as rate setters adopt a wait-and-see stance in the face of inflationary pressures at home and an economic slowdown in the euro zone.

Kochalski, a professor at the Poznan University of Economics and Business with experience at Poland’s financial supervision authority, replaces Jerzy Osiatynski, one of the few panel members who has said rates may have to rise.

Osiatynski’s term came to an end on Dec. 20.

Poland’s benchmark interest rate has been at a record low of 1.5% since 2015, and central bank governor Adam Glapinski has repeatedly said that rates are likely to remain on hold until his term ends in 2022.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Mexico Central Bank Prepared to Act If Inflation, Risks Stay Low

© Reuters.  Mexico Central Bank Prepared to Act If Inflation, Risks Stay Low © Reuters. Mexico Central Bank Prepared to Act If Inflation, Risks Stay Low

(Bloomberg) — Mexico’s central bank could take monetary policy action as soon as February if it sees that inflation as well as internal and external risks remain low, Governor Alejandro Diaz de Leon said in an interview.

“We have to monitor if conditions in the economy continue having this favorable trend in terms of inflation and lower external and internal risks, and if this occurs it allows us to take monetary policy actions,” he said. “But this is precisely what we’ll be monitoring from now until the next decision.”

The central bank has cut borrowing costs by a quarter point in each of its past four rate decisions to 7.25%, but still has one of the highest real rates in the world. That’s fueled division within the board about how quickly it should ease monetary policy without risking a rebound in inflation and peso volatility.

Inflation has slowed markedly, and even fell below target to 2.63% in early December. The peso has been the best performing major emerging market currency this year, gaining further after the U.S. House of Representatives voted for an updated North American free trade agreement with Mexico and Canada.

Capital Flows

Diaz de Leon, who has voted with the majority for a cautious easing cycle, signaled that Mexico’s monetary policy may be better positioned to mitigate fluctuations in investor flows than to boost an economy that has low lending rates.

“Monetary policy channels are different for different economies,” Diaz de Leon said in what he described as his last interview of 2019. “In Mexico, probably due to its low penetration in financing as a percentage of GDP, it has a credit channel and sensitivity to interest rates different than other economies.”

And yet “we’re an economy very open to capital flows,” he added.

He said, however, that the central bank isn’t “pre-announcing” future policy actions and will make its decision based on data available at the time of its meetings.

Dissenting Votes

Diaz de Leon said that Mexico’s minimum wage hike of 20% for 2020 is expected to have a moderate impact on inflation. He wouldn’t respond to recent comments from fellow board member Gerardo Esquivel, who said on Twitter that those who criticize the wage hike seem to be using arguments from “Economy 101.”

Two out of five board members have repeatedly voted against the majority and for deeper half-point cuts amid concerns over an economy that dipped into a technical recession earlier this year.

In contrast to the prior three decisions, only one member voted for a deeper half-point cut in the December 19 meeting. All five members voted, said Diaz de Leon, after speculation arose that either Esquivel or Jonathan Heath, the two who had sought deeper cuts in previous meetings, had been absent.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Major central bank overview for December

The central bank rundown

The weekend is a perfect time for a quick catch up for where the major central banks are at. The central banks are listed below with the most bearish central bank first and the most bullish central bank last.

European Central Bank, 0.00%. Bearish 

The ECB has undergone a change of guard as the former President, Mario Draghi’s, leaves his post. He has been succeeded by Christine Lagarde and her first impact on monetary policy will now be felt on December 12 with the ECB’s latest rate decision. So far, Christine Lagarde has given little away in terms of her approach. However, the outlook for the eurozone remains tilted firmly to the downside with inflation levels in October remaining below the 2% target at 0.7%. The ECB stated that rates will be at present or lower levels until inflation data has picked up closer to the 2.0% target. The ECB should retain a bearish outlook and December 12 is the key date for the market to properly assess what steer Christine Lagarde is going to give. Personally I am expecting some kind of repeat of Draghi’s appeal for fiscal stimulus as central banks around the world accept that monetary policy can only go so far, especially when rates are so low.The risk is that the ECB are more bearish than the 10bps rate cut currently priced in for 2020.

Reserve Bank of Australia, 0.75%. Bearish

The AUD has whipsawed around lately after Governor Lowe’s latest speech on unconventional policy on Tuesday of this week. Although Governor Lowe said that the RBA’s lower rate level was 0.25% and QE would not be even considered before rates hit that level, the market has taken a bearish outlook on his view. The investment banks Westpac and RBC forecast that the RBA will cut the cash rate to 0.25% by June 2020 and follow that up with QE. So, as the market starts to price in additional cuts from the RBA the focus will be on economic data and speeches that confirm or deny this outlook. A rate cut is not expected for next weeks meeting, but the market will be looking for any signals from the RBA about a coming rate cut for 2020. One final aspect to mention is that the Australian economy is closely tied to China’s fortunes with around 30% of its GDP coming from trade with China. Therefore, AUD will be pushed or pulled along with the US-China trade sentiment too.

Federal Reserve, 1.50%-1.75%. Neutral

ECB

The FOMC cut rates by 25bps at their October meeting, but did signal a pause in rate cuts. However, it was also made clear that the Fed was not about to start hiking interest rates either and the Fed was not on a pre-set course. Latest minutes confirmed what Fed speakers had been communicating that the Fed would be on hold for the medium term. The present market pricing is a 94.8% chance of no change for the December meeting. However, the general outlook for US monetary policy is bearish with a 51% chance of a 25bps rate cut by June 2020 and a 72% chance of a 25bps rate cut by December 2020. Latest economic data on Manufacturing and Services PMI have been robust and Durable goods out this week showed a beat at +0.6% vs -0.9% expected with US manufacturing holding up despite the US-China trade concerns. The US Q3 GDP data showed a beat too at 2.1% vs 1.9% expected. However, the main driver of the USD is going to be the US-China trade negotiations.As long as the US domestic economy holds up I sense that President Trump is quite happy with China squirming on the uncertainty of the latest negotiations. Any negative twists will see USD strengthen as its safe haven status comes to the forefront.  

Bank of England, 0.75%. Neutral/dovish

The single cloud which continues to obscure the BoE’s view is Brexit, or more specifically, the chance of a no-deal Brexit. The BoE has slowly shifted to a more dovish stance as the Brexit Withdrawal Agreement has become more and more elusive and investor sentiment has become more reluctant given uncertainties surrounding Brexit. This dovish outlook was recently confirmed when Haskell and Saunders voted for a 25bps rate cut at the last BoE policy meeting.For now the GBP is being moved on election polls. As long as the conservative majority remains heading into the December 12 election, expect GBP buyers. The rationale is that as long as the conservatives have a majority, Boris Johnson’s Withdrawal Agreement bill will pass through UK parliament and in this manner a no-deal Brexit is avoided.

Swiss National Bank, -0.75%. Neutral to bearish

The SNB interest rates are the world’s lowest at-0.75% and haven’t changed at a scheduled meeting since 2009. However, with the strengthening Franc hurting the Swiss export economy a number of large institutions, like UBS Group, Raiffeisen Bank International AG and Bank J. Safra Sarasin, called for a rate cut at the September 19 meeting. This was in response to the Swiss franc increasing more than 4% versus the Euro.These calls were not heeded. As Swiss inflation remains low, in October 2019 it stood at -0.3%, the SNB rate is likely to stay as the world’s lowest interest rate for the foreseeable future.

Bank of Japan, -0.10%. Neutral

Fsderal Reserve

The Bank of Japan is very bearish as a bank. Inflation in Japan continues to miss the 2% target and the BoJ have stated that they will ‘keep very low interest rate levels for an extended period of time’. In October inflation in Japan stood at just 0.2% slowing from its peak in April of 0.9%. The Bank of Japan has been failing to achieve its inflation target for years since it fell from 2.3% to 0.6% in April 2015. The highest reading since then has been 1.5% in February 2018. At their October meeting, in response to low inflation data, the Bank of Japan tweaked their forward guidance to signal a rate cut in the near future by stating that they expect short term and long term rates to stay at current or lower levels for as long as needed. The risks for Japan’s economy are neutral to bearish.

Reserve Bank of New Zealand, 1.00%. Neutral

In early August this year the RBNZ cut interest rates by a surprise 50bps at their rate meeting. Governor Orr was very bearish in his language at the press conference and he didn’t rule out the RBNZ needing to take further action. He saw negative interest rates as an option and even the prospect of QE. So, in November the RBNZ was expected to cut interest rates further from 1.00% to 0.75%.However, the RBNZ surprised markets again, but this time by not cutting interest rates. The RBNZ is now in a wait and see mode. Latest business confidence data out this week showed a decent recovery from recent lows and Goldman Sachs consider the NZD to be one of the biggest potential beneficiaries from Yuan appreciation on a US-China trade deal signing and tariff rollback. Furthermore, GS’s economists are anticipating a moderate recovery in the NZD economy through 2020, so there could be a moderate recovery in NZD and more downside in AUDNZD as the central bank diverge in their outlooks. Certainly AUDNZD is a pair to watch.

Bank of Canada, 1.75%. Neutral/bullish

The Bank of Canada had been the only major central bank to not turn explicitly dovish. However, at their latest rate meeting the BoC highlighted their concern over the US-China trade deal as a potential drag on the Canadian economy and the BoC’s tone was more dovish. However, last week Governor Poioz was more upbeat about the Canadian economy. This week Canada’s September non-farm earnings showed the largest rise in wages since 2014. The Q3 GDP on Friday was as expected at +1.3%, so the BoC should stay on hold at the moment. Adam pointed out that the GDP figure had a chunk taken out by inventory and trade data and if you took those out growth is at +3.4%. So, in short the BoC has enough solid data to maintain rates as they are for the immediate future.

So, ForexLive readers, I hope this is helpful as a quick December rundown on where we are at with the world’s major central banks. Have a great weekend!

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Saudi central bank governor reiterates banking sector is very liquid

© Reuters.  Saudi central bank governor reiterates banking sector is very liquid © Reuters. Saudi central bank governor reiterates banking sector is very liquid

RIYADH (Reuters) – Saudi Arabia’s banking sector has a high level of liquidity, its central bank governor said on Sunday, as banks in the Gulf state offer leverage to Saudi investors for shares in Saudi Aramco’s approaching initial public offering.

“The Saudi banking sector enjoys very high level of liquidity compared to Basel requirements,” Ahmed al-Kholifey told a conference.

In September, the governor had said he did not expect Saudi Aramco’s planned listing to affect liquidity in the banking sector, as all indicators were healthy.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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