Sign up to create alerts for Instruments,
Economic Events and content by followed authors
Free Sign Up Already have an account? Sign In
Quotes
All Instrument Types
- All Instrument Types
- Indices
- Equities
- ETFs
- Funds
- Commodities
- Currencies
- Crypto
- Bonds
- Certificates
Please try another search
Investors lost 37% by missing this ONE signal 😵
Read now
USD Dips (Slightly) On Fed Taper, Could BoE Hike Rates?
au.investing.com/analysis/usd-dips-slightly-on-fed-taper-could-boe-hike-rates-200491430
USD Dips (Slightly) On Fed Taper, Could BoE Hike Rates?
By Kathy Lien | Nov 04, 2021 07:15 The Federal Reserve has made it official. Starting later this month, it will reduce its monthly bond purchases by $15 billion ($10 billion Treasuries, $5 billion mortgage-backed securities). By June 2022, the bond-buying program should come to an end. The Fed explains that pandemic stimulus can start to be unwound as “substantial further progress in the economy has (been) made toward the committee’s goals since last December.”
It left interest rates unchanged, which was expected, and continued to use the word “transitory” to describe inflation. While some investors believed it would drop this language, it did not seem to matter, as once the dust settled, the U.S. dollar ended the day virtually unchanged (slightly lower) from its pre-FOMC levels against other the major currencies. Stocks and bond yields ended higher, which should benefit the Yen crosses.
Looking ahead to Friday’s non-farm payrolls report, economists expect a significant recovery in job growth during the month of October. A large part of this has to do with the slowdown in September, when non-farm payrolls rose by only 194,000. That number is expected to more than double this week, with a consensus forecast of 450,000. According to ADP (NASDAQ:ADP), private sector payroll growth was very strong last month, but even though service-sector activity hit a record high in October, the shortage of workers drove the employment index lower. As one of the most important leading indicators for non-farm payrolls, this suggests that while more jobs are expected in October, the increase may fall short of the market’s lofty forecast.
Will BoE Hike On Thursday?
Meanwhile, as we count down to Friday’s NFP report, our focus shifts to the Bank of England’s monetary policy announcement on Thursday. In many ways, the BoE rate decision should have a greater impact on sterling than the FOMC did on the U.S. dollar because the U.K. central bank is close to raising interest rates. As the second major central bank to reduce asset purchases, the BoE has been leading the pack in unwinding pandemic support, and with inflation surging, a small contingent of investors believe it could hike as quickly as Thursday. The market is pricing in a 60% chance of 15bp hike, which means a full quarter-point move is unlikely. However, the central bank has done a smaller adjustment before, so we can’t rule out that possibility completely.
BoE Governor Andrew Bailey and monetary policy committee member Michael Saunders have suggested that an immediate hike may be needed, but other policy-makers want to see further improvements in labor market activity or evidence that inflation is less transitory before making the move. With the RBNZ raising rates, the Bank of Canada announcing the end to quantitative easing and the Fed beginning to reduce asset purchases, we think there is a decent chance for a rate hike by the BoE. It may not be a full quarter point, but it could be a 15bp increase. Immediate tightening should be wildly positive for the greenback, as it is not really anticipated. However, if the BoE forgoes a rate hike in November, then a hike in December becomes very likely. In this scenario, we expect no change to be accompanied by hawkish comments, which could be initially negative but ultimately positive for GBP. Either way, barring an unexpected surprise, we see sterling strength post-BoE, particularly against euro.
The best performing currency today was the New Zealand dollar. Employment growth soared in the third quarter, driving the country's unemployment rate to its lowest level since 2007. The 3.4% is much lower than the 3.9% forecast and matches the record low. Wage growth was also healthy, rising 0.7%. This data justifies the Reserve Bank of New Zealand’s recent decision to raise interest rates. The Australian dollar rose in lockstep with NZD, but the Canadian dollar was held back by the 4% drop in oil prices.
Related Articles
US Dollar Under Pressure Ahead of CPI This Week - Soft Print to Fuel...
By Günay Caymaz - Mar 10, 2025
The US dollar fell last week due to Trump's inconsistent trade policies and signs of a slowing economy. February's non-farm payroll data disappointed, with unemployment...
US Dollar Struggles Ahead of NFP—Why EUR/USD Dips Are a Buy
By Chris Turner - Mar 07, 2025
This week's FX price action has been dominated by two stories: the re-rating of the euro (EUR/USD) on the back of looser fiscal and tighter monetary policy expectations and the...
Is US Dollar Topping Pattern Pointing to Broader Concerns?
By Chris Kimble - Mar 07, 2025
The US Dollar Index rallied sharply into inauguration day. Since then, it’s been very weak. Could things get worse for King Dollar? Today, we share a “weekly” chart highlighting a...
USD Dips (Slightly) On Fed Taper, Could BoE Hike Rates?
Add Chart to Comment
Confirm Block
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
Report this comment
I feel that this comment is:
Comment flagged
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.