Fed’s monetary policy report: The economy is improving, and the gradual rate hike is still the main issue

on Friday (July 13), the Fed disclosed a semi-annual monetary policy report submitted to Congress. The report is generally optimistic. The report said that the US economic growth was strong in the first half of this year, and the Fed is expected to continue to raise interest rates gradually . Due to the expected wording of the report, the US dollar and gold did not respond significantly.

　　This is from Bao Weier second document since early February at the helm of the Fed, the Fed submitted to Congress. Powell is scheduled to answer questions about Congress next Tuesday and next Wednesday.

The 63-page report is in line with current expectations as detailed by the Fed at the policy meeting, that is, strong economic growth and low unemployment require a rate hike, but the lack of severe inflationary pressures means that it can maintain a gradual rate hike.Download the app Read this article for more in-depth coverage
　　The 63-page report is in line with current expectations as detailed by the Fed at the policy meeting, that is, strong economic growth and low unemployment require a rate hike, but the lack of severe inflationary pressures means that it can maintain a gradual rate hike.

　　The Fed said in the report that in the first half of this year, the overall economic activity of the United States seems to have grown steadily, and the economy continues to be supported by favorable consumer and business confidence. In the first half of the year, household wealth increased, foreign economic growth was stable, and domestic financial conditions were loose.

　　Therefore, the Fed expects that “interest rates will gradually increase” is appropriate. The Fed is currently striving to continue to promote economic expansion. This round of expansion is the second longest economic expansion in history.

　　The Fed said that the Trump administration’s tax cuts may lead to a rebound in consumer spending from a downturn and may provide modest boosts for this year’s economic growth.

　　Powell mentioned in an interview on Thursday that the US economy is relatively optimistic. He said that he believes that the US economy is still in a “very good position” and that recent government tax and spending plans may boost GDP growth within three years.

　　Since the tightening cycle began in December 2015, the Fed has raised interest rates seven times, and recently raised the benchmark interest rate by another 25 percentage points in mid-June. The Fed is expected to raise interest rates twice before the end of the year.

　　In addition, Fed policy makers once again stated in the report that wage growth has been weaker than expected given the current unemployment rate of 4%. If labor demand is still strong, more workers in the golden age will enter the labor market. Wage growth may be under pressure due to weak productivity, and the labor market is still likely to be further slack.

　　Focus on the impact of trade protectionism

　　The report mentions the Trump administration’s trade protectionist policy. Although there was no discussion, the report stated that “although there is not a lot of pressure, uncertainty is a concern of financial markets.”

　　Many policymakers expressed concern about trade disputes with major allies, and Powell said on Thursday that high tariffs on products and services could damage the economy.

　　Earlier announced US July University of Michigan consumer confidence index initial value of 97.1, less than expected 98, due to consumer concerns about trade protectionism. After the data was released, the US dollar index fell in a short-term.

　　Curtin, head of consumer research at the University of Michigan, said that consumer confidence declined in early July, but it was almost the same as the average of the previous 12 months. The current decline in consumer confidence is due to growing concerns about the negative impact of tariffs on the domestic economy. They are worried about the future economic growth rate and rising inflation.

　　After the Fed disclosed the report, there was no significant fluctuation in the market. Mainly because the tone and content of the report are basically consistent with the contents of the previous Fed policy meeting.

　　After the disclosure of the report, the US dollar and gold did not respond significantly. As of press time, the US dollar index was 94.7902, a decrease of 0.02%; spot gold is now reported at 1242.46 US dollars / ounce, an increase of 0.4%.

ECB Believe That an interest rate hike at the end of 2019 is too late

Some European Central Bank management committees believe that the interest rate hike at the end of 2019 is too late
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　　Bloomberg News quoted informed sources said some ECB officials believe that by the end of 2019 and then raise interest rates too late, is more likely to raise interest rates, although any decision depends on the prevailing economic prospects for next year in September or October. The euro regained its earlier decline against the dollar, rising 27 points in the short term and expecting the probability of a rate hike in September to rise to 80%.

　　According to informed sources quoted by Bloomberg, some European central bank officials believe that if the market expects to raise interest rates at the end of 2019, I am afraid it will be too late. It is more likely to raise interest rates in September or October next year, but any decision will depend on the economic outlook at the time.

　　The news directly pushed the euro against the dollar to rise 27 points in the short-term, hitting a high of 1.1666, completely regaining the earlier decline.

　　Although the market still fully calculates the possibility that the benchmark deposit rate will increase by 10 basis points in December 2019, the probability of raising interest rates in September will increase from less than 70% to 80%.

　　Wall Street has mentioned that the European Central Bank’s policy meeting in mid-June maintained the three major interest rates unchanged, announcing that it will completely close the net bond purchase project in December this year, but will keep interest rates unchanged “at least until the end of summer in 2019”.

　　Although the QE volume-wide project had a definitive conclusion at the end of the project, the wording of the interest rate triggered the market doves to interpret the euro, and the euro fell more than 1% in the short-term, and the eurozone government bond yield led by German debt fell sharply.

　　The ECB management committee member and Taiwan central bank Governor Vitas Vasiliauskas later said that the forward-looking guidance on interest rates should be understood as: no interest rate increase until the end of September next year, and the suspense of raising interest rates will be left to 2019 10 Policy meetings for the month and December.

　　Bloomberg commented that the timing of the ECB’s interest rate hike has become more important as the QE net bond-financing timeline has no suspense. On Tuesday, ECB chief economist Peter Praet also said that interest rates will play a central role in the future major policy instruments, which means that interest rate decisions will set the tone for the European Central Bank’s monetary easing after the financial crisis.

　　In addition, the European Central Bank President Mario Draghi, who is known as the “Dove”, will step down on October 31, 2019. Some analysts pointed out that the policy meeting in September or October next year will also be the last of Draghi. Window to adjust post-crisis policies.

　　France Paribas economist said this week the European Central Bank also adjusted its June policy statement on interest rates commitment (rate pledge) French, German and

　　It is worth noting that the yield curve of the national debt of major countries in the eurozone has also become flatter.

　　According to Reuters, the two-year and 10-year German bond yield spreads fell to a one-year flat on Wednesday, to 97 basis points, 10 years and 30 years, as the European Central Bank sent a signal focused on buying long-term bonds. Bond yield spreads have narrowed by 10 basis points in the past week.

　　In addition, France’s 30-year borrowing costs are close to 18 months, and the 10-year and 30-year Italian bond yield spread narrowed by 18 basis points to 74 basis points in the past week.

After The Fed’s Meeting: four interest rate hikes are expected to detonate the market

The minutes after the Fed meeting, a countdown began for four interest rate hikes which are expected to detonate the market

　　The Fed will announce the minutes of the June FOMC policy meeting at 02:00 am Beijing time on Friday (July 6), and discussions on how US interest rates should rise may become the focus. Discussions about inflation may provide some clues to raising interest rates.

　　The minutes of the meeting may also indicate that officials debated the growing dispute between the United States and its major trading partners, the dollar’s strength and the risk of flattening the yield curve. These concerns may curb expectations of accelerating the pace of interest rate hikes.

　　At a press conference after the meeting, Fed Chairman Powell poured a cold water on the idea that policymakers can accurately measure the level of interest rate impact on the economy, and it is the key to deciding when to stop raising interest rates. But Joseph Song, a senior US economist at Bank of America, said this would not stop discussions between policymakers.

　　Song said: “This is still what they are trying to estimate, but it is still an important part of the policy line. It is significant to know the scope of this expectation and whether the Fed believes it can reach this level.”

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　　As the unemployment rate fell to its lowest level since 2000, the inflation rate rebounded to the 2% target, officials raised the target range of the benchmark federal funds rate to 1.75% to 2%, and announced at the meeting last month. New forecast.

　　The Federal Open Market Committee raised the median forecast for a 2018 rate hike from three to four, although this situation was caused by an unidentified official changing his or her predictions. Neutral expectations have not changed and remain at 2.9%.

　　Song pointed out that the minutes of the meeting “may fall back to some of the hawkish effects expected in June.”

　　Whether the Fed will raise interest rates once or twice during the year is likely to depend on actual inflation data and inflation expectations. The Fed has repeatedly mentioned “symmetric” inflation targets in the past two statements, which many believe is a sign that policymakers can tolerate inflation slightly above the target.

　　In May, the Fed’s annual price increase index reached 2.3%. Gus Faucher, the chief economist at PNC Financial Services Group, pointed out that although the meeting was held before the inflation data was released, Friday’s meeting minutes may provide some signals of how Fed officials will respond to higher inflation.

Investment bank reveals why the recent rebound in gold prices is expected to hit $1,300 during the year.

According to TD Securities, after a near one-year low in June, gold prices are expected to recover and continue to rise in the remaining months of the summer. The lack of “fuel” in the iterative trade war and the weakening of the dollar are factors that support the price of gold.

　　TD Securities Global Strategy Director Bart Melek wrote in a report released on Monday (July 9): “The price of gold is expected to exceed $1,270 per ounce in the summer. In fact, if the price of gold rises in the last three months of 2018 We are not surprised by $1300/oz.”

　　Melek pointed out that gold has started to recover last week, and COMEX August gold futures rose from $1,240 per ounce to around $1,260 per ounce.

　　Melek wrote: “The weaker dollar, lack of interest in risky assets and the decline in long-term bond yields were key factors in the rise in gold prices last week. The bond yield curve was further flattened, which triggered a possible end to the current US economic expansion. Guessing and worrying, this is another important reason why gold prices have performed relatively well in recent days.”

　　The report emphasizes that in the short term, some market speculators may recover their hawkish prospects on the issue of the Federal Reserve’s (FED) tightening of monetary policy, which will benefit the gold price.

　　Melek added that the strength of emerging market currencies will also play a key role in boosting gold prices this summer.

　　At the same time, Melek expects that as the European Central Bank (ECB) prepares to raise interest rates, the dollar’s gains will fall back, which is another good sign of gold.

Daniel Ghali, a commodities strategist at TD Securities, pointed out that investors may turn their attention to macroeconomic data as the trade war between China and the US has not been seriously upgraded this week.

　　Ghali writes: “US inflation data may become the focus of precious metals traders, CPI and PPI will be released this week. But in addition to macro data, with US President Trump visiting Europe, market participants may also pay attention to NATO Summit.”

　　Ghali explained: “Given the recent stock market unease and the resurgence of global economic growth that will be driven by trade, traders may interpret inflation weakness as a sign that the Fed may still abandon radical interest rate increases.”

　　This week, investors will usher in some heavy data, the most important of which will be the US Consumer Price Index (CPI) on Thursday.

　　Analysts pointed out that if consumer inflation data continues to maintain current trends or accelerate, then the dollar may be rebound, as the possibility of another rate hike in 2018 will rise further. However, if the CPI and the last Friday’s wage data echo and fall back, it may lead to the suppression of the dollar, which will benefit the gold price.

BIS general manager worries about a “Systemic Threat” Of Bitcoin

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BIS general manager worries about a “Systemic Threat” Of Bitcoin, Prompts “Pre-emptive regulation” From Law enforcement “If authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat… ” The general manager of the Bank for International Settlements (BIS) has pummeled bitcoin as a “combination of a bubble, a Ponzi scheme, and an environmental disaster.” Augustin Carstens asked Tuesday the sustainability of bitcoin and other cryptocurrencies and suggested federal government had a responsibility to shut down on the monetary technology

The FED & BOE Move The Markets

The U.S. and the U.K.’s central banks will hold their monthly sessions this week to decide where to set key interest rates. Investors worldwide will be watching these key events closely as they can significantly affect USD and GBP pairs*

The EUR/USD climbed after the U.S. Federal Reserve voted to leave rates unchanged at 1.25% last month, highlighting “solid” economic growth. This left room for another rate hike in December, with analysts claiming that a rate hike is highly likely this month, pricing in the odds at 100%, according to Investing.com’s Fed Rate Monitor Tool.

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As expected, the Bank of England increased interest rates in November, marking the first rate hike in the last decade. Specifically, the BoE increased the benchmark interest rate from a record low of 0.25% to 0.50%, effectively reversing the last rate cut after the Brexit referendum. However, the rate hike was widely anticipated, which led to a sterling sell-off and caused the EURGBP to rally.

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What do the analysts expect this month?

Release Forecast* Previous*

FED Interest Rate Decision 1.50% 1.25%

BOE Interest Rate Decision 0.50% 0.50%

*Table source: investing.com

How might the Forex Markets be affected?

A generally hawkish stance and a higher-than-expected key interest rate can be considered positive/bullish for USD and GBP pairs.*

OR

A dovish monetary outlook and a lower-than-expected rate will have a negative/bearish effect on USD and GBP pairs.*