US GDP Data, Bank of Japan & Eurozone Inflation Data Drives Currency Market Forecasts

January 29, 2016 - Written by James Fuller

STORY LINK US GDP Data, Bank of Japan & Eurozone Inflation Data Drives Currency Market Forecasts

Analysts Fear US Recession after Gross Domestic Product Missed Estimates

Major developments from three corners of the world have informed price action in the global markets today. The USA remains the world’s number one economy by some distance, so major data releases from the States are significant for almost every major currency. Investors were therefore already bracing themselves for this afternoon’s US Q4 Gross Domestic Product numbers, with a sharp fall from Q3’s year-on-year showing of 2.0% expected.

The result of 0.7%, versus an anticipated 0.8%, came as a shock to market watchers in general, as well as Dollar-holders, and led many analysts to suggest that the American economy might now be heading towards another recession.

Analysts reacted to the key data release by suggesting that it may alter the expected trajectory of US monetary policy, with Chris Williamson stating that, ‘the slowdown adds more pressure to the Fed to reconsider the timing of future rate hikes, and suggests that policymakers may pare back their current expectations of a further four quarter-point hikes in 2016.’

Bank of Japan Slash Rates, AUD and NZD Exchange Rates Rally

Elsewhere, last night’s surprise decision from the Bank of Japan (BoJ) to slash its headline interest rate into negative territory improved investor sentiment amongst Asian investors.

Japan’s headline Nikkei 225 stock index was having a losing session before the news, but ended the day up by a hefty 2.80% as equities traders warmed to the idea of even ‘easier’ money.

In the currency markets, the BoJ’s intervention is forecast to favour the risk-driven Australian Dollar (currency : AUD) and New Zealand Dollar (currency : NZD). Both have enjoyed positive sessions against the Pound Sterling (currency : GBP) today.

ECB Quantitative Easing Looks to be Having Desired Impact, EUR Projected to Climb Moving Forward

Meanwhile, turning to the eurozone, there was good news for Mario Draghi and his European Central Bank (ECB) this morning with the confirmation that local inflation had increased to a year-on-year 0.4%. The rise from December’s counterpart figure of 0.2% suggests that the ECB’s attempts to reflate the euroland’s financial system via Quantitative Easing is having the desired effect and this is expected to favour the euro (currency : EUR) moving forward.

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TAGS: American Dollar Forecasts Australian Dollar Forecasts Euro Forecasts New Zeal Forecasts