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WEEK AHEAD: Central Banks to Set Tone for Currencies
3:46 PM ET on Friday, March 01, 2013
By Matthew Walter
A crowded calendar of central-bank meetings next week will give currency traders new clues about whether weak global growth will lead to easier monetary policy in the developed world.
Authorities in Europe, the U.K., Australia, Canada and Japan will hold separate meetings, and while expectations for significant new policy announcements are somewhat mixed, investors will pay close attention to comments from top central bankers for signs that they will take actions later in the year.
"It's all about the messaging" from central banks next week, said Greg Anderson, a strategist at Citigroup in New York.
With economic indicators from Europe to Japan remaining sluggish, analysts say central bankers will likely lay the groundwork to announce new efforts to lower interest in the near future.
"If any central banker surprises by being neutral, their currency is going to appreciate," Mr. Anderson said.
The string of meetings will be the first since policy makers met last month at the Group of 20 summit of leading industrialized and developing countries, where they agreed to avoid explicitly targeting weaker exchange rates, which could help make their exports more competitive. That will increase the focus on how authorities discuss their exchange rates next week.
But concerns earlier in the year that developed countries were creating a so-called currency war, where monetary authorities push down their exchange rates to try to gain a competitive advantage, have dissipated in recent weeks. In part that reflects the strengthening dollar, which relieved pressure on other currencies.
The Wall Street Journal Dollar Index, which tracks the value of the dollar against a basket of currencies, has risen more than 3.3% over the past month, on rising expectations that the U.S. economy will continue to strengthen this year.
In the U.S., the non-farm payrolls report expected on Friday should provide a key indication of the pace of economic growth, and traders will look to see if the job market is improving quickly enough for the Federal Reserve to wind down its bond-buying program sooner than expected.
Capital Economics expects the report to show that payrolls increased 175,000 last month, with the unemployment rate holding steady at 7.9%. Should the jobs figure miss expectations, it might lead to volatile trading in currencies, given widespread uncertainty in the market about when the Fed will start to reign in its bond-buying program, known as quantitative easing, said Stephen Jen, founder of hedge fund SLJ Macro Partners in London.
The Fed began an open-ended bond-buying program last fall, which is designed to keep borrowing costs low and spark faster growth. While some policy makers within the central bank expressed concern in recent weeks about the risks of maintaining extraordinarily loose monetary policy for too long, top authorities including Fed Chairman Ben Bernanke defended the program. In testimony to congress Feb. 26-27, Bernanke argued that the job market remains too weak to begin withdrawing central bank stimulus.
"Because of the internal debate at the Fed about the costs of quantitative easing, it has made the calculus more uncertain" surrounding the payrolls report, Jen said.
Canada will also report on February employment on Friday. In Europe, investors will keep an eye on developments in Italy to see if the newly elected parliament will manage to form a new government. Markets may also react to a report on Wednesday on the breakdown of euro zone fourth quarter growth, which is expected to confirm that the economy contracted. A report on German industrial production will follow on Friday.
Write to Matthew Walter at [You must be registered and logged in to see this link.]
(END) Dow Jones Newswires
March 01, 2013 15:46 ET (20:46 GMT)
Copyright (c) 2013 Dow Jones & Company, Inc.
[You must be registered and logged in to see this link.]
Thanks to Lakehouse from GoingglobalEastMeetsWest for this article
3:46 PM ET on Friday, March 01, 2013
By Matthew Walter
A crowded calendar of central-bank meetings next week will give currency traders new clues about whether weak global growth will lead to easier monetary policy in the developed world.
Authorities in Europe, the U.K., Australia, Canada and Japan will hold separate meetings, and while expectations for significant new policy announcements are somewhat mixed, investors will pay close attention to comments from top central bankers for signs that they will take actions later in the year.
"It's all about the messaging" from central banks next week, said Greg Anderson, a strategist at Citigroup in New York.
With economic indicators from Europe to Japan remaining sluggish, analysts say central bankers will likely lay the groundwork to announce new efforts to lower interest in the near future.
"If any central banker surprises by being neutral, their currency is going to appreciate," Mr. Anderson said.
The string of meetings will be the first since policy makers met last month at the Group of 20 summit of leading industrialized and developing countries, where they agreed to avoid explicitly targeting weaker exchange rates, which could help make their exports more competitive. That will increase the focus on how authorities discuss their exchange rates next week.
But concerns earlier in the year that developed countries were creating a so-called currency war, where monetary authorities push down their exchange rates to try to gain a competitive advantage, have dissipated in recent weeks. In part that reflects the strengthening dollar, which relieved pressure on other currencies.
The Wall Street Journal Dollar Index, which tracks the value of the dollar against a basket of currencies, has risen more than 3.3% over the past month, on rising expectations that the U.S. economy will continue to strengthen this year.
In the U.S., the non-farm payrolls report expected on Friday should provide a key indication of the pace of economic growth, and traders will look to see if the job market is improving quickly enough for the Federal Reserve to wind down its bond-buying program sooner than expected.
Capital Economics expects the report to show that payrolls increased 175,000 last month, with the unemployment rate holding steady at 7.9%. Should the jobs figure miss expectations, it might lead to volatile trading in currencies, given widespread uncertainty in the market about when the Fed will start to reign in its bond-buying program, known as quantitative easing, said Stephen Jen, founder of hedge fund SLJ Macro Partners in London.
The Fed began an open-ended bond-buying program last fall, which is designed to keep borrowing costs low and spark faster growth. While some policy makers within the central bank expressed concern in recent weeks about the risks of maintaining extraordinarily loose monetary policy for too long, top authorities including Fed Chairman Ben Bernanke defended the program. In testimony to congress Feb. 26-27, Bernanke argued that the job market remains too weak to begin withdrawing central bank stimulus.
"Because of the internal debate at the Fed about the costs of quantitative easing, it has made the calculus more uncertain" surrounding the payrolls report, Jen said.
Canada will also report on February employment on Friday. In Europe, investors will keep an eye on developments in Italy to see if the newly elected parliament will manage to form a new government. Markets may also react to a report on Wednesday on the breakdown of euro zone fourth quarter growth, which is expected to confirm that the economy contracted. A report on German industrial production will follow on Friday.
Write to Matthew Walter at [You must be registered and logged in to see this link.]
(END) Dow Jones Newswires
March 01, 2013 15:46 ET (20:46 GMT)
Copyright (c) 2013 Dow Jones & Company, Inc.
[You must be registered and logged in to see this link.]
Thanks to Lakehouse from GoingglobalEastMeetsWest for this article
