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FX Blog- Global-View.com Month Ahead Interest Rate Outlook for September 22, 2008

October 22, 2008

Monetary Policy Forecasts for Major Economies


The Global-View.com Monetary Policy Outlook is prepared weekly by the trading professionals at GVI Forex. For information on the GVI Forex Service Click Here



Globally, the central banks are now finally all just about on the same page. Inflation targeting remains the goal of most if not all central bankers. But they are now worried about the risk of deflation, not inflation. Central bankers are increasingly worried about the risk of another depression, but swear that they will not make the same policy mistakes that were made at that time. The Fed has taken a leadership role in this regard and has pledged to do whatever is required to keep the U.S. economy afloat.

Even the ECB reluctantly has gotten on board. The only needle in the compass of President Trichet seems only aimed at keeping a lid on inflation, not preventing deflation. Most economists are in agreement that deflation is an evil greater than inflation. With its refi rate target at 3.75% the ECB has ample room to cut rates. We expect a -25bp policy easing in early November and then expect that central bank to play things by ear subsequentlt. We don�t see 3.50% as a floor on rates. The BOE faces a rapidly declining economy. The BOE should cut rates by another 50bps in November. The SNB next meets in December ansd is likely to ease at that time.

Japanese monetary policy will remain on hold with rates already (0.50%) at rock bottom level. As for the commodity currencies, the RBNZ should cut by -100bps to 6.50% on Thursday. The Reserve Bank of Australia should ease by -50 bps to 5.50% on November 8, and after easing twice by a total of -75bps in October, the Bank of Canada has signaled additional ease on December 9. At this juncture, it looks like a -25bp cut is in store to 2.00%.


UNITED STATES

GVI U.S. Feberal Reserve Bank Policy Meeting Preview

  • Decision: October 29 at 18:15 GMT.
  • Fed Funds rate: 1.50%
  • Expected Decision: -25bp rate cut
  • The Fed participated in the -50bp coordinated central bank rate cut on October 8. Short-term market sentiment contnues to exert a strong influence on Fed policy decisions. Additional ease has been signaled.

FEDERAL RESERVE Policy Objective: The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

uscpi

The chart above shows year/year core PCE for the U.S. relative to its its reported "comfort zone for this key price index. Headline and Core CPI figures are also shown.

ezcpi

ezcpi




s-t rates

The above monthly U.S. employment chart is included because its the most closely followed data release each month, and because one of the objectives of the Fed is to maximize employment.

s-t rates


s-t rates

The chart above shows the current three month libor rate, the current Fed funds target  and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago.  The chart provides a view on where the markets feel U.S. interest rates are headed.




interest rates

The chart above shows the U.S. Fed Funds rate target, three month libor, and two- and ten-year bond yields over the past twelve months.

Major Economies � Interest Rate Forecasts- Monthly Perspective

foreign currency pairs


EUROZONE

GVI European Central Bank Policy Meeting Preview

  • Decision: November 6, 2008 at 11:45 GMT.
  • ECB Refi rate: 3.75%
  • Expected Decision: -25 cut
  • The ECB belatedly participated in the -50bp coordinated rate cut on October 8. Policy now should start to fouus more on economic growth and financial stability. The obsession with inflation is broadly being seen now as in error.

    ECB Policy Objective: The primary objective of the ECB's monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term.

    ezcpi

    The chart above shows year/year HICP (Harmonized CPI) for the Eurozone relatrive to its "below 2%" target level.

    ezcpi

    ezcpi




s-t rates

The chart above shows the current three month libor rate, the current ECB  "refi" rate target  and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago.  The chart provides a view on where the markets feel Eurozone interest rates are headed.


interest rates

The chart above shows the ECB refi rate target, three month libor, and two- and ten-year bond yields over the past twelve months.

forex forecast services negative



JAPAN

GVI BOJ Policy Meeting Preview

  • Decision: October 31, 2008
  • Current Overnight Target Rate: 0.50%
  • Expected decision: No change.
  • As the economy slows, there is no threat for higher Japanese rates. No cuts are even possible. The political situation also is unstable.

BANK OF JAPAN Policy Objective: The Bank of Japan Law states that the Bank's monetary policy should be "aimed at, through the pursuit of price stability, contributing to the sound development of the national economy."

Nationwide CPI

The chart above shows year/year core nationwide CPI and the reported BOJ goal of between 0% and 2% for this price index. 

Manufacturing PMI



CHART: BOJ Quarterly Tankan Survey




s-t rates

The chart above shows the current three month libor rate, the current BOJ overnight rate target  and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago.  The chart provides a view on where the markets feel Japanese interest rates are headed.


interest rates

The chart above shows the Japanese overnight rate target, three month libor, and two- and ten-year bond yields over the past twelve months.

major currency pairs


UNITED KINGDOM

GVI Bank of England Policy Meeting Preview

  • Decision: November 6, 2008 at 11:00 GMT.
  • BOE Repo Rate: 4.50%
  • Expected Decision: -25bp or -50bp rate cut.
  • BOE policy makers participated in the coordinated -50bp rate cut on October 6. Risks that the economy might fall off a cliff kep the door open for future ease.

    BANK OF ENGLAND Policy Objective: The Bank's monetary policy objective is to deliver price stability, low inflation, and, subject to that, to support the Government's economic objectives including those for growth and employment. Price stability is defined by the Government's inflation target of 2%.

    ezcpi

    The chart above shows year/year CPI for the U.K. relative to its 2% target for this key price index. 


    ezcpi




s-t rates

The chart above shows the current three month libor rate, the current Repo Rate  and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago.  The chart provides a view on where the markets feel U.K. interest rates are headed.


interest rates

The chart above shows the U.K. repo rate target, three month libor, and two- and ten-year bond yields over the past twelve months.

forex currency market reports



SWITZERLAND

GVI Swiss National Bank Policy Meeting Preview

  • Decision: December 11, 2008 at 08:30 GMT.
  • SNB 3mo Swiss libor target: 2.25%
  • Expected Decision: -25bps
  • The SNB participated in the October 8 coordinated -50bp rate cut. Further ease in December is probable.

    SWISS NATIONAL BANK Policy Objective: The National Bank equates price stability with a rise in the national consumer price index (CPI) of less than 2% per annum. In so doing, it takes account of the fact that not every price movement is necessarily inflationary. Furthermore, it believes that inflation cannot be measured accurately. Measurement problems arise, for example, when the quality of goods and services improves. Such changes are not properly accounted for in the CPI; as a result, inflation, as measured by the CPI, will be slightly overstated.

    chcpi

    The chart above shows year/year CPI and the Swiss goal of less than 2% for this price index. 

    chpmi




s-t rates

The chart above shows the current three month libor rate, the current three-month Euro-Swiss target  and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago.  The chart provides a view on where the markets feel Swiss interest rates are headed.


interest rates

The chart above shows the Swiss three-month Euro-swiss rate target, three month libor, and two- and ten-year bond yields over the past twelve months.

currency exchange forecast

AUSTRALIA

GVI Reserve Bank of Australia Policy Meeting Preview

  • Decision Anouncement: November 4, 2008 at 04:30 GMT.
  • RBA Cash Rate Target: 6.00%
  • -50bp rate cut
  • The Reserve Bank has jumped ahead of the game by cutting its target rate by 100bps to 6.0%. It would have taken forever to bring rates down in -25bp increments form 7.00%. We expect a -50bp rate cut in November, but a larger move is not impossible.

RESERVE BANK OF AUSTRALIA Policy Objective: The policy objective is a target for consumer price inflation, of 2-3 per cent per annum. Monetary policy aims to achieve this over the medium term and, subject to that, to encourage the strong and sustainable growth in the economy. Controlling inflation preserves the value of money. In the long run, this is the principal way in which monetary policy can help to form a sound basis for long-term growth in the economy.

aucpi

The chart above shows year/year and the CPI target of 2% to 3% for this price index. 

aupmi



jobs


s-t rates

The chart above shows the current three month bank bill rate, the current Cash Rate target  and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago.  The chart provides a view on where the markets feel Australian interest rates are headed.


interest rates

The chart above shows the Australian overnight rate target, three month bank bills, and two- and ten-year bond yields over the past twelve months.

us currency


CANADA

GVI Bank of Canada Policy Meeting Preview

  • Decision: December 9, 2008 at 13:00 GMT.
  • BOC Overnight Target Rate: 2.25%
  • Expected Decision: -25bps.
  • The Bank of Canada continues to participate in coordinated policy ease. An additional -25bp rate cut on December 9 is probable.

    BANK OF CANADA Policy Objective: The Bank of Canada aims to keep inflation at the 2 per cent target, the midpoint of the 1 to 3 per cent inflation-control target range. This target is expressed in terms of total CPI inflation, but the Bank uses a measure of core inflation as an operational guide. Core inflation provides a better measure of the underlying trend of inflation and tends to be a better predictor of future changes in the total CPI.

    cacpi

    The chart above shows year/year CPI-X (core CPI) and the target of 2% for this price index. 

    PMI



    jobs


s-t rates

The chart above shows the current three month Banker Acceptance rate, the current BOC overnight rate target  and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago.  The chart provides a view on where the markets feel Canadian interest rates are headed.


interest rates

The chart above shows the Canadian overnight rate target, three month Bankers Acceptance, and two- and ten-year bond yields over the past twelve months.

John M. Bland is a co-founder and partner of Global-View.com. Prior to Global-View.com, he was a Vice-President and senior dealer in a forex inter-bank and futures trading arm of a subsidiary (ContiCurrency) of the Continental Grain Company in NYC. Previous to that, he was one of the early members of the Chemical Bank corporate advisory service in NYC, and also worked in international liability management for that bank. John holds an MBA from the Hass School at the University of California at Berkeley and a bachelors degree in International Economics from Berkeley.






 

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Amazing Trader EVENT RISK Calendar:

Tue 24 Oct
All Day flash PMIs
Wed 25 Oct
01:30 AU- CPI
08:00 DE- IFO Survey
08:30 GB- GDP
14:00 CA- BOC Decision
14:30 US- EIA Crude
Thu 26 Oct
11:45 EZ- ECB Decision
12:30 US- Weekly Jobless
14:00 US- Pending Homes Sales
Fri 27 Oct
12:30 US- GDP
14:00 US- final Univ of Michigan

Forex Trading Outlook


Potential Trading Opportunities


  • POTENTIAL PRICE RISK: Medium Tue-- All Day Global flash PMIs. First good look at October economic performances.



  • POTENTIAL PRICE RISK: HIGH Wed-- 01:30 GMT AU- CPI. Top Inflation indicator.

  • POTENTIAL PRICE RISK: HIGH Wed-- 08:00 GMT DE- IFO Survey. Top German indicator.


  • POTENTIAL PRICE RISK: HIGH Wed-- 14:00 GMT CA- BOC Decision. No Policy Change Expected.


  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top Weekly WTI Statistic.



John M. Bland, MBA
co-founding Partner, Global-View.com

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