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Dollar Mixed As Consolidative Tone Continues – BBH

FXStreet (Barcelona) - Marc Chandler, Global Head of Currency Strategy at BBH Global notes that the consolidative tone that has been a general feature of the foreign exchange market continues today, leaving the US dollar broadly mixed.

Key Quotes

“Even though the Fed's new Labor Market Conditions Index improved more than expected, the performance of the Fed funds and Eurodollar futures indicate little impact on expectations for the first rate hike. This is to highlight that the main drivers of the dollar at the moment are not developments in the US but Europe and Japan.”

“Speculation that Abe was going postpone the implementation of next October's planned hike in the sales tax (to 10% from 8%) and call snap elections helped lift the dollar to JPY116 yesterday.”

“Although some officials are trying to link the ultimate decision to next week's Q3 GDP report, we suspect that the bar is too high, and that Q3 GDP will come in around 2.0-2.2%, not the 3.8% some officials reportedly cited. In addition to the snap election and delay in the sales tax increase, we continue to expect a supplemental budget (JPY3-5 trillion) and a reduction in the tax on corporate profits by 2-3 percentage points”

“In some ways, the QIR confirmed what many investors have suspected. Rather than come before the Federal Reserve, the first rate hike by the Bank of England is likely to come after--toward the end of next year."

"For the record, the BOE cuts its growth forecasts to 2.9% for 2015 and to 2.6% for 2016, down from 3.1% and 2.8%, respectively, from the previous report in August. It warned that inflation may slip below 1% in the coming months, and tended to focus on the downside risks emanating from the eurozone.“

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