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This Week?s Bank of Japan (BoJ) and Fed Decisions Forecast to Shape GBP, JPY, USD Exchange Rate Movement

July 25, 2016 - Written by John Cameron

The near-term will see the announcement of further UK economic data which has been pessimistically predicted, thereby holding the potential to devalue the Pound once again.

The present week will bring, among other things, the Fed's first post-'Brexit' interest rate decision, though as of writing, expectations have been for no change at 0.50%.

This Week's Central Bank Interest Rate Decisions are Likely to Drive Foreign Exchange Rate Trading



This week’s session is peppered with tier one data releases but two risk events stand out; the central banks of America and Japan are both due to make their latest monetary policy announcements and in the wake of the UK’s Brexit vote of last month, and each is anticipated. Our leading currency analyst assess the likely impact of these two decisions below …

Will the Federal Reserve Cut Interest Rates In Light of the UK's Decision to Brexit?



In the weeks leading up to June’s Brexit vote, the US Federal Reserve was firm in its view that a decision by the UK electorate to leave the European Union. The Fed’s latest monetary policy statement, published during the middle part of last month, before the British Referendum, observed that,

‘An additional factor in the Committee's policy deliberations was the upcoming U.K. referendum on membership in the European Union. Members noted the considerable uncertainty about the outcome of the vote and its potential economic and financial market consequences. They indicated that they would closely monitor developments associated with the referendum as well as other global economic and financial developments that could affect the U.S. outlook.’


USD Exchange Rates Forecast to Weaken if Fed Hints at Static Rates



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If the Fed’s policy statement, penned in for publication on Wednesday evening, confirms that a US interest rate hike is now much less likely before the turn of the year thanks to the ongoing Brexit uncertainty, then look for the US Dollar (currency : USD) to weaken against the other most actively traded global currencies.

BoJ Predicted to Loosen Policy, Japanese Yen (JPY) Currency Volatility Expected



Elsewhere, the final session of the week is also likely to determine the trajectory for global risk sentiment. Investors widely expect the Bank of Japan (BoJ) to further loosen its monetary policy during the early hours of Friday morning following the recent victory for Prime Minister Shinzo Abe in Japan’s upper house elections. However, expectations remain so high that they may have to endure a degree of disappointment; Bank of Japan Governor Haruhiko Kuroda used the unlikely medium of a BBC radio studio interview last week to pre-announce that he is ruling out one unconventional form of easing which has been mooted during recent weeks. Kuroda explained that, ‘I don't think at this stage we should abandon this institutional setting. No need and no possibility for helicopter money.’

In short hand terms, further monetary easing from the Fed and the BoJ is forecast to trigger an improvement for the Commodity Dollars (AUD, NZD and CAD), while at the same time weighing down the safe haven Japanese Yen (currency : JPY) and the US Dollar (currency : USD).
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