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CFD Markets News and Forecasts — 16-06-2024
France's President Emmanuel Macron on Friday dismissed extreme economic plans as unrealistic amid crucial economic challenges.
Key quotes
Not worried about the impact on markets after the decision to dissolve the government.
Economic programs by two extremist blocks in parliament elections are not realistic.
We are at a very serious moment for our country, with major economic issues at stake.
Hopes to have agreement on top of your jobs quickly.
Market reaction
At the time of press, the EUR/USD pair was down 0.02% on the day at 1.0702.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Minneapolis Federal Reserve President Neel Kashkari said on Sunday that it is a “reasonable prediction” that the Fed will wait until December to cut interest rates, adding that the central bank is in a very good position to get more data before making any decisions.
Key quotes
We need to see more evidence to convince US inflation is heading to 2%.
US economy is stronger than in other countries that are cutting rates.
Job market has performed better than expected.
May be more cooling in labor market yet to come, hope it will be modest.
Reasonable that rate cut could come in December.
We are in a very good position to take our time, get more data, before making a decision on rate.
Median projection is for one cut, that's likely to be toward end of the year.
We are in a high pressure economy in some dimensions, but some signs it's cooling.
Net effect of immigration in long-run on inflation is hard to judge
Best thing Fed can do for housing is to get inflation down.
Market reaction
The US Dollar Index (DXY) is trading 0.03% higher on the day at 105.55, as of writing.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
European Central Bank (ECB) Governing Council member Martins Kazaks said on Sunday that the bank must not allow inflation to remain above 2% into 2026, adding that he is concerned about delays beyond this.
Key quotes
“Currently I think we are still on the path to 2% in the second half of 2025, and I would really hope that we would do it by that time.”
“We should not drag this problem into 2026.”
“If data show that reaching our target is being pushed out beyond 2025, then of course the restriction level needs to be maintained for longer so that we can avert those kind of outcomes.”
Market reaction
At the time of press, the EUR/USD pair was down 0.01% on the day at 1.0704.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
- AUD/USD trades with mild gains around 0.6615 in Monday’s early Asian session.
- The UoM's Consumer Sentiment Index came in worse than the expectation, declining to 65.6 in May from 69.1.
- The RBA is anticipated to hold its key interest rate at a 12-year high on Tuesday.
The AUD/USD pair snaps the two-day losing streak near 0.6615 amid the consolidation of the US Dollar (USD) in Monday’s early Asian session. Meanwhile, the US Dollar Index (DXY) hovers around near 105.50 after retracing from its highest level since early May near 105.80. Investors will closely monitor the Reserve Bank of Australia (RBA) interest rate decision on Tuesday, with no change in rate expected.
Consumer confidence in the United States deteriorated in early June. The University of Michigan's Consumer Sentiment Index declined to 65.6 in May from 69.1, below the market consensus of 72. Meanwhile, the one-year inflation expectation held steady at 3.3%, while the five-year inflation outlook rose to 3.1% from 3%. The Greenback preserved its strength after these reports as traders anticipate interest rates will stay higher for longer than expected since inflation expectations remained above the Fed’s 2% target.
On the Aussie front, the RBA will likely hold its key interest rate at 4.35% at its June meeting on Tuesday as inflation stays hot. The RBA’s Governor Michele Bullock emphasized that she needs to gain confidence that inflation is moving sustainably back to the 2%-3% target and the board isn’t ruling anything in or out. “We expect the RBA to comfortably maintain its somewhat hawkish hold stance," said Carl Ang, a Singapore-based fixed income analyst at MFS Investment. The hawkish message from the Australian central bank might boost the Australian Dollar (AUD) and cap the downside for the AUD/USD pair.
New Zealand’s Business NZ Performance of Services Index (PSI) dropped to 43.0 in May from the previous reading of 47.1, according to Business NZ on Monday.
The figure registered the lowest level for a non-COVID lockdown month since the survey began in 2007.
“The speed of decline is as worrisome as its size over the past three months. There is weak and then there is very weak. Overall, this tells of a services sector in reverse at pace,” said BNZ’s Senior Economist Doug Steel.
Market Reaction
At the press time, the NZD/USD pair is down 0.05% on the day to trade at 0.6138.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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