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U.S. Dollar Falls After Fed More Dovish Than Expected; NZ Dollar Soars

Here’s today’s ‘Just A Minute’ bringing you a 60 second summary of what’s happening in the financial markets:

Main Trading Event Of The Day: UK Retail Sales @ 08.30 GMT

WHAT WE’RE WATCHING TODAY

U.S. Dollar Falls After Fed More Dovish Than Expected; NZ Dollar Soars

The U.S. dollar fell to its lowest in nearly two weeks against a basket of major currencies after the Federal Reserve hinted at yesterday’s meetings that U.S. interest rates will stay low for a while. The latest economic projections suggested that the Fed sees rates rising more in 2015 and 2016 than it had previously forecast, but officials lowered their long-term rate target. The Fed also sounded comfortable with the inflation outlook despite recent signs of a pick-up in price pressure. After the meetings, the dollar slipped 0.3 percent on the day to 80.378, and fell as far as 80.353, a level not seen since June 9. Against the yen, the greenback was almost flat on the day at 101.91 JPY, down from a one-week high of 102.38 yen hit on Wednesday before the Fed’s announcement, while the euro was slightly lower at $1.3589 after it touched $1.3600 EUR on Wednesday. The Fed cut its monthly bond buying program by a further $10 billion to $35 billion in a widely expected move and expressed confidence that the economic recovery remained on track.

The New Zealand dollar soared to a record high against a basket of currencies after the Fed’s dovish stance, rallying nearly 1 percent to hover around six-week highs of $0.8736 NZD. The outlook for higher New Zealand interest rates was reinforced by data showing the economy grew a solid 1.0 percent in the first quarter from the previous quarter, a result that cemented New Zealand as one of the fastest-growing developed economies. The Australian dollar was steady on the day at $0.9404 AUD, having gained 0.7 percent on Wednesday.

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Eurozone: Is Deflation On The Horizon?

Professional services firm EY has warned that although the euro zone economy is set to grow in 2014, the threat of looming deflation in the region persists. The region will grow 1.1 percent this year, according to EY’s forecasts, followed by expansion of 1.5 percent in 2015. Growth is seen picking up pace between 2016 and 2018. Strengthening exports and a pickup in domestic demand will drive a return to modest investment growth but the recovery is likely to be felt more in some countries than others. The threat of deflation has been a key issue in European policymakers’ minds in recent months. The European Central Bank (ECB) announced measures to tackle the issue at its most recent policy meeting, including imposing a negative interest rates on banks for their deposits. Inflation in the euro zone rose by just 0.5 percent in the year in May, significantly below the ECB’s target of 2 percent. The inflation slowdown has been due to lower energy costs and increasing euro strength and there are now real concerns that inflation could turn to deflation, as firms start to bid down prices and wages in order to compete for orders. Deflationary pressures could have a knock on effect on consumer spending, just as confidence was starting to build. Exporters may also be in for another tough year as the euro remains stubbornly strong. The euro is currently trading around $1.35 against the dollar, down from peaks of $1.39 earlier in the year.

Emerging Markets: The Asset Class Of Choice?

Analysts are predicting that increasing comfort with the outlook for China’s economy will make emerging market equities the best performing asset class in the second half of 2014. Recent Chinese economic data indicates a stabilisation in the world’s second-largest economy, assisted by targeted stimulus measures. This is positive for emerging markets, many of which are dependent on exports to the mainland. May retail sales, for example, rose 12.5 percent on year, above analyst expectations for a 12.1 percent increase. While fixed asset investment rose 17.2 percent on year for the January-to-May period, just above expectations for a 17.1 percent rise. Emerging markets equities are up 3.9 percent year to date, slightly underperforming global stocks which have risen 4.1 percent, according to the MSCI Emerging Markets and MSCI World indices. India and Southeast Asian markets have been the biggest beneficiaries. Markets that were battered into 2013 are seeing a revival because of good policy from the central banks and economic momentum is not as poor as initially thought. Strategists at Coutts Investment Office, agree that emerging markets are the place to be.

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That sums up today’s highlights! Remember you can keep in touch with us throughout the day via Facebook, Twitter, Google+ and LinkedIn for all the latest trading news. We hope you have a profitable day on the markets.

 

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Just A Minute!

Here’s today’s ‘Just A Minute’ bringing you a 60 second summary what’s happening in the markets today:

Main Trading Events Of The Day: BOJ Press Conference, GBP CPY y/y @ 09.30 & EUR German ZEW Economic Sentiment @ 10.00 GMT

Earnings Reports: The Coca-Cola Company. Earnings per share forecast: 46 cents. Release: Before U.S. markets open today.

WHAT WE’RE WATCHING TODAY

Nikkei Jumps As Bank Of Japan Doubles Loan Programs

Following today’s earlier statement, the Bank of Japan has kept its broad monetary policy and assessment of the economy unchanged but also doubled the size of two soon-to-expire special lending programs in a move to encourage loan growth and support the world’s third-largest economy. The board voted unanimously to keep the pace of its monetary easing unchanged, as widely expected although it would double the scale of its programs lending to banks in order to stimulate loans and support the economy. The doubling of the lending facility is, however, according to some analysts, seen as a dovish signal that the BOJ is prepared to ease further and that it’s committed to keeping liquidity extremely loose. The yen weakened to as low as 102.74 against the dollar after the BOJ’s announcement and was trading at 102.72 at 2:46 p.m. in Tokyo, down 0.8 percent. The Topix index rose 2.8 percent.

Meanwhile, Asian stocks rose, with the regional benchmark index poised for a three-week high, whilst Chinese shares fell as the central bank drained liquidity from the financial system. Both the U.S. dollar and the Euro climbed higher against the yen. After briefly dipping, the U.S. dollar climbed to ¥102.57 and traded as high as ¥102.61 from around ¥101.98 just before the bank released its statement. The dollar bought ¥101.56 late Monday. The euro also jumped against the yen, buying ¥140.55 from around ¥139.50.

Buildings are reflected on a Bank of Japan board in Tokyo

Forecasters Remain Bearish As Gold Extends Gains

Gold looks likely to extend gains to fresh three-month highs this week as mixed U.S. economic data encourages safe-haven buying though some warn the rally may be capped around $1,350. A U.S. data-heavy schedule this week may drive gold higher if releases including the closely-watched housing and inflation numbers are below forecasts and help weaken the U.S. dollar, though extreme weather conditions may distort the readings. Sentiment towards gold appears to have turned around and will continue to rise if this week’s big data dump continues to show mixed results. Mixed economic numbers compounded by the extreme weather mean that it’s unlikely that the U.S. Federal Reserve will cut monthly bond purchases beyond the current gradual pace. With Janet Yellen admitting that the economy clearly needs more work, more money printing will help gold’s position at $1,300 and beyond. Gold’s best forecasters are, however, still holding to their bearish forecasts for 2014 even after the metal posted its best start to a year since 1983. They say the rebound won’t last because higher prices will stifle purchases and the Federal Reserve will continue slowing stimulus as the economy strengthens.

What Awaits The Markets This Week?

With the Federal Reserve set to release the minutes from its January FOMC meeting on Wednesday, market participants will closely monitor them for any clues relating to the outlook and the future of quantitative easing. For those who rely on economic data to determine its next move, this is not an easy time. Two straight employment reports have shown weak gains in nonfarm payrolls (113,000 in January and a marginally adjusted 75,000 in December) but the extent to which bad weather adversely impacted those numbers is also a factor. The Committee will next meet in March with a broad range of data on the economy to look at, including another jobs report, although the February employment report could also be marred by weather conditions. The Fed’s minutes could consequently shed some light on exactly how much weakness the FOMC needs to see before it deviates from its course of tapering quantitative by $10 billion per month. The Fed is unlikely to deviate unless there is a material markdown of outlook. This could put a bid under the market, some traders say. The minutes, which are due for release on Wednesday, will shed light on the decision-making and debate that marked former Fed Chairman Ben Bernanke’s last meeting which was held on Jan. 28 and 29. The Fed’s next move will be announced on March 19, after the next FOMC meeting.

That sums up today’s highlights! Keep in touch for breaking financial news to help you with your trading. We hope you have a profitable day on the markets!

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bullion

Bullion Declining As Fed Hints At Recovery

Gold declined for a third day, trimming its monthly gain, as the U.S. Federal Reserve spoke of willingness to scale back its monetary stimulus, should economy improve. Silver platinum, and palladium have also experienced drops.

Gold for immediate delivery fell as much as 0.7 percent to $1,335.30 an ounce. Prices, however, are still up 0.5 percent this month after the 16-day U.S. shutdown hurt the country’s economy and investors anticipate that the Fed won’t slow down the pace of asset purchases until next year.

More specifically the central bank announced yesterday that it will maintain its $85 billion monthly bond purchases, while noting that it could see signs of “underlying strength” in the economy.

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euro vs. dollar

Dollar Rising Against Euro Sign of Recovery?

The U.S. dollar kept rising for the fourth day against the euro before the release of U.S. Unemployment Claims, which is forecast to have decreased, today at 1:30 p.m. GMT.

The U.S. currency, however, is still set for monthly declines against most major peers as the Federal Reserve decision to continue its $85-billion bond-buying programme released yesterday underlines the toll the partial government shutdown earlier this month took on the economy.

The dollar inched up 0.2 percent to $1.3709 yesterday, after having gained 0.5 percent in the previous three sessions. Overall for the month, the greenback was set for a 1.3 percent fall against the euro.

Whether the signs of recovery can hold up in these turbulent times will be revealed in the first-time applications for jobless benefits which is expected to have decreased to 341,000 in the week ended 26th October from 350,000 the week before.

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