Central banks have been in the limelight for the past 24 hours. Notably, Norway’s central bank once again bucked the trend of global easing by hiking its policy rate 25bp to 1.50% – its third hike this year although the Norges Bank hinted that rates were likely to now remain on hold.
The Fed yesterday delivered its expected 25bp rate cut to 1.75-2.00% – the second since July – but voting FOMC members were divided, with two in favour of leaving rates unchanged and one in favour of a larger 50bp cut. Moreover, the 17 FOMC members are divided as to whether it will be appropriate to cut, hike or leave rates unchanged for the remainder of the year, unlike the market which is fully pricing in a 25bp rate cut. Nevertheless the Dollar has remained very steady. The Dollar trade weighted index has oscillated in a 0.3% range in the past seven sessions, the narrowest 7-day range since
early July.
Similarly, the Euro trade weighted index is currently bang in the middle of a two-month range of just 2% while Sterling is unchanged for the second day running. Sterling weakened following the release of retail sales data showing a 0.3% mom contraction in the volume of sales in August, with GBP/USD slumping to 1.244 from 1.25. But somewhat surprisingly Sterling recouped all of its losses following the Bank of England’s policy meeting despite a dovish twist. As expected the MPC left rates unchanged at 0.75%, with no dissenters, but the accompanying minutes added that if Brexit uncertainty persisted the policy rate would likely remain low for longer.
Finally the Swiss Franc has rallied about 0.3% in the wake of the Swiss National Bank’s policy meeting. While the SNB revised down its growth and inflation forecast and announced steps to reduce the penalty that banks pay on excess reserves (as the ECB did last week) it stopped short of cutting its policy rate of -0.75%. The SNB’s decision not to follow in the ECB’s footsteps with a policy rate cut has buoyed the Swiss Franc – unwelcome news for a central bank seemingly keen to curb the disinflationary impact of a strong currency.
The Australian Dollar weakened to a 2-week low following the release of August labour data this morning, with the markets seemingly taking a “glass half empty” view of the figures. Total employment rose by 34,700 – far more than the 10,000 expected – but full-time jobs fell by 15,500. Moreover, the rise in the participation rate eclipsed job creation and as a result the Australian unemployment rate rose to 5.3% from 5.2%. This suggests there is some slack in the Australian labour markets and expectations are once again mounting that the RBA will cut rates for a third time this year.
