FOREX in February

28

FEBRUARY, 2018

AK Equity Group

Japanese inflation edges closer to target, Federal Reserve interest rates holding steady

The Federal Reserve’s first interest rate decision for this year was to hold steady. Thus, in the short-term, we may see strength in the GBPUSD and EURUSD currency pairs. However, with recent steady growth and increase in inflation, expectations for the Federal Reserve suggests potential gradual interest rate increases. Chairman Jerome Powell recently stated, “We are in the process of gradually normalizing both interest rate policy and our balance sheet.”

As the European economy continues to grow, European Central Bank Mario Draghi is facing a challenging task of dealing with the strengthening euro and recent market volatility. However, the ECB will be closely monitoring the exchange rate and is confident that due to the rapid economic growth, inflation rate will climb closer to but lower than the targeted 2%. In the medium to long-term, the outlook for the euro is slightly less strength.

The long-term outlook on the pound remains positive and garners support from David Davis, Secretary of State for Brexit made, that despite an inevitable change in the ways its domestic companies will conduct future business with the EU and other foreign countries, the underlying statement aimed at European businesses was that it however “will not change the kind of country Britain is.” Additionally, Bank of England Governor Mark Carney stated in its January press conference that the BOE expects investment growth after leaving the EU in late 2019, stating that foreign companies “will seek to tap the available cash assets” within the UK.

Bank of Japan Governor Haruhiko Kuroda was reappointed for another five-year term and thus likely to maintain continuity in the bank’s policy to gradually reduce stimulus and accelerate inflation to its 2% target, reassuring the long-term outlook of a weaker yen.

New Zealand’s Reserve Bank Acting Governor Grant Spencer in its latest press conference stated, “Monetary policy will remain accommodative for a considerable period,” as it held interest rates at a record low with projections extending up until mid-2019. Additionally, the RBNZ lowered its inflation target expectations, adding another two years to its inflation target of 1-3%. Thus, the long-term outlook for the New Zealand dollar remains positive.

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