MARKETS REACT TO FED, BOJ CONTINUES THURSDAY
It has been a highly active week in the financial markets, with investors tracking a deluge of economic data and monetary policy developments. On Thursday, market participants will continue to dissect a pair of central bank meetings that shed important insights about the future.
The US Federal Reserve voted to keep interest rates on hold Wednesday and said it would begin to unwind its portfolio of bonds next month. Beginning in October, the Fed will reduce its portfolio holdings by $10 billion per month. At this pace, it’ll be a few years before the central bank goes through half of its $4.5 trillion balance sheet.
Officials also voted to keep the federal funds rate on hold at 1.25%, and signaled that December was still primed for a rate adjustment.
The Bank of Japan (BOJ) also kept monetary policy on hold Thursday amid unexpected dissent. One member of the policy committee, Goushi Kataoka, voted against the decision to leave the target interest rates and asset purchase program unchanged.
The Japanese yen wasn’t impacted by the decision, with the USD/JPY trading slightly higher during Asian trade.
Monetary policy will continue to drive the markets later in the day, with key speeches from European Central Bank (ECB) President Mario Draghi and Peter Praet, a member of the ECB’s Executive Board. The ECB will also release its Economic Bulletin at 08:00 GMT. The publication takes a deep dive into the performance of the euro area economy.
Shifting gears to economic data, investors can expect a steady stream of reports over the next few hours. UK National Statistics will report on public sector net borrowing at 08:30 GMT. At the same time, the British Bankers’ Association will release mortgage approvals for the month of August.
North American releases include US weekly jobless claims, the Philadelphia Fed’s Manufacturing Survey and the Housing Price Index courtesy of the Federal Housing Finance Agency (FHWA). These reports will be released between 12:30 and 13:00 GMT.
The USD/JPY is trading at two-month highs after risk appetite burned a hole through the yen. The pair was last up 0.1% at 112.46 after breaking sharply higher on Wednesday. The next psychological test comes just ahead of 113.00. On the downside, Tuesday’s high at 111.87 provides a solid support zone.
Cable held within a narrow range on Thursday after losing 100 pips during the previous session. It’s still too early to conclude that the dollar bulls have regained control of the market. As such, the pair remains strongly supported at 1.3440.
Like the pound before it, the euro dropped more than 100 pips after the FOMC meeting. The EUR/USD has fallen below the 1.19 handle. The September low of around 1.1835 offers good short-term support, but a break below that level would damage the euro’s bullish outlook.