Forex Crunch » Inflation

A necessary but insufficient ‘compact’

Yohay — Mon, 12 Dec 2011 12:36:59 +0000

Looking beyond the headlines with regards to the UK’s (and others’) participation or otherwise in the proposed changes to the EU Lisbon Treaty, the “fiscal compact” that emerged on Friday was, at the very least, a step in the right direction. The question is whether it will be seen as enough by the rating agencies and in particular Standard & Poor’s, which put much of the eurozone on review a week ago.

The need for closer fiscal and economic coordination has been recognised for a long time – it is just that leaders have always been too busy fire-fighting to do much about it. The issue we have raised continually, and which still appears to stand, is that the changes proposed do not go far enough. Much of what has been proposed is based on the pillars of the stability and growth pact, which was shown to be severely flawed. Video:

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Surprising Jump in European Inflation Lowers Chances of 0.50% Rate Cut

Yohay — Fri, 30 Sep 2011 09:08:42 +0000

According to the initial release of CPI in the euro-zone, prices rose at an annual pace of 3% in September, much higher than 2.5% that was expected and the highest level in many years.

In his last rate decision, Jean-Claude Trichet will probably refrain from cutting the interest rate by 0.5% and perhaps he won’t cut the rates at all, despite the dire situation of the European economies.

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Hint of a Rate Cut? ECB Preview

Yohay — Wed, 07 Sep 2011 09:34:08 +0000

No change is expected in the upcoming rate decision in the euro-zone. Trichet is likely to soften his stance on inflation. But how soft will he be? ECB Preview.

In the recent rate decision, Jean-Claude Trichet remained upbeat on inflation risks. He used the code words “very closely monitoring”, which mean that a rate hike isn’t like in the next meeting, but could appear afterwards. This is likely to change now

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Eurozone engine stalls

Yohay — Wed, 17 Aug 2011 11:47:28 +0000

With both Germany and the rest of Europe registering almost zero growth last quarter, traders’ and investors’ growth concerns were reawakened yesterday, which for a time weighed on stocks, oil and the euro, and benefitted safe-havens such as treasuries, gold and the Swiss franc. At one stage, the DAX was down almost 3%, the gold price traded above $1,790, the Swissie fell back under 0.78, and the 10-yr Bund yield was down by 5bp. However, some better-than-expected industrial production data out of the US and Fitch’s affirmation of America’s AAA-rating steadied earlier nerves.

In response, risk appetite gradually returned, with the DAX ending down just 0.5%, the Swissie climbing back above 0.80, and the Aussie threatening 1.05 once more. It is worth observing that had this negative growth news out of Europe emerged either last week or the week before, the market response would likely have been much more adverse. How much can be read into this price action remains to be seen. It might only be the calm before the next storm.

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Monitoring Closely or Very Closely? ECB Preview

Yohay — Mon, 04 Jul 2011 15:19:25 +0000

Jean-Claude Trichet will meet the press once again. He is likely to appear after the announcement of a rate hike, and the markets will focus on his words at the press conference. What will Trichet hint about the next moves? How will the euro react? ECB Preview.

Hiking the rates to 1.50%

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US debt-limit talks descend into acrimony

Yohay — Thu, 30 Jun 2011 08:23:36 +0000

Now that Greece has been temporarily ‘saved’, the focus might start to shift to the unresolved and equally serious issue of the US debt limit. Unfortunately, the omens on this front still look gloomy, with President Obama yesterday chastising the Republicans for their lack of concern for children and the elderly in their negotiations over the deficit. The Democrats want tax increases to form part of the package to reduce America’s fiscal largesse, whereas the GOP is after meaningful cuts in entitlements and in Medicare payments to the elderly. The Republicans continue to argue that a bill which both lifts the debt ceiling and raises taxes will not pass through Congress.

Most alarming is the position of a number of new Congressmen aligned to the Tea Party movement who have dismissed the urgency of raising the debt ceiling by August 2^nd. Two days ago, a senior Republican who participated in the bipartisan deficit negotiations with Vice-President Biden stated that it was increasingly likely that Republicans in the House will not act to raise the debt limit by the August 2^nd deadline unless the Democrats agree to major changes in entitlements.

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No respite soon for high inflation Britain

Yohay — Fri, 27 May 2011 08:10:11 +0000

With consumer price inflation 3% or above for all but nine months of the past three years, after a while it can be no surprise if inflation expectations rise and remain at a higher level. According to the latest survey from Citigroup, inflation expectations for the coming year rose to 3.4% in the current month, up from 2.9% previously. A concern is that consumers continually expect inflation to remain well above the central bank’s 2% target, no surprise really when one considers that inflation has averaged 3% in the country over the past five years! An additional observation is that companies appear to be able to pass on price increases with relative ease.

Guest post by FXPro

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GBP/USD Approaches Resistance on Rising Inflation

Yohay — Tue, 17 May 2011 08:33:49 +0000

Inflation in Britain is up again after taking a breather last month. The annual pace of CPI rose from 4% to 4.5%. A rise to 4.2% was expected.This fresh rise boosts GBP/USD which approaches the resistance region and continues higher. Update.

4.5% is the highest level seen for a very long time. This shows that last month’s drop was only temporary. Also Core CPI leaped from 3.2% to 3.7%, exceeding expectations for a rise to 3.4% (annualized). Only RPI was marginally softer than expected, at 5.2% rather than 5.3%.

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Dollar takes a breather

Yohay — Tue, 17 May 2011 07:08:04 +0000

After a (frankly) sparkling first couple of weeks of this month, Monday witnessed some profit-taking in the greenback. Other than dollar longs taking profit, a slight improvement in risk appetite and some market participants taking a more benign view of Greek developments, it was difficult to pinpoint any other particular rationale for the price action. Two major beneficiaries were the Swedish krona and the Swiss franc, both up a full 1%. The EUR, which in Monday’s Asian session briefly fell below 1.4050, slowly recovered to reach 1.42. News out of Brussels that European leaders had agreed on a Portuguese bailout gave the single currency a boost. The Aussie likewise fared better, reaching 1.06. As always, the pound was caught in the middle, outperforming the weaker dollar but losing out to both the euro and the franc. Overnight the yen has lost ground against most major currencies, amidst rumours of large M&A flows.

Guest post by FXPro

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China’s gradual economic rebalancing

Yohay — Wed, 11 May 2011 06:00:55 +0000

Against the backdrop of crucial bilateral talks between the world’s two superpowers, it is clear that China increasingly understands the urgent need to undertake economic rebalancing. For instance, PBOC officials have repeatedly stated over recent months that a stronger exchange rate can play a part in inhibiting the build-up of inflationary pressures. This is a position that Chinese politicians also increasingly accept. At the same time, China has actively been implementing changes to capital and trade controls, in effect allowing fuller convertibility of the yuan.

Guest post by FXPro

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