Foreign Exchange Markets Stabilize Due to ECB Meeting
The dollar on Wednesday strengthened while the Yen weakened on the back of fragile investor optimism. This happens while the market generally maintains tight ranges in the wake of a series of central bank meetings over the next week.
All Eyes on the ECB
Investors the world over are shifting their focus to the European Central Bank meeting this Thursday. Many market analysts believe that the ECB will negate interest rates further at their meeting. Furthermore, experts expect it will influence the same decisions with other central banks in play as well. The US Federal Reserve and the Bank of Japan have their sittings next week. Market observers are already anticipating that these series of meetings will have an effect on investor risk appetite on a broader global scale.
Currently, the market has a cautious sentiment that is in effect after political uncertainties that reigned over the markets recently. Most notable of these are the uncertainties in Hong Kong and Britain. These have contributed to the turbulence noted in safe assets on the foreign exchange market recently.
More Pessimistic Numbers despite the Optimism
Bonds saw a decline on Tuesday night while the Yen registered its lowest against the dollar since August 1 at 107.65 per dollar. This, however, more significant by the fact that there has been a slowdown in global demand for the same. Observers anticipate that this will offset any positive developments made in the US-China Trade War negotiations.
The Euro, on the other hand, has continued on its defensive trail to trade at $1.1047. This is some positive sign considering the Euro has lost up to 3% of its value since June this year. There were no many movements on the dollar against the AUD, and trading remained flat at $0.6860. The same also happened against the Yen and the NZD.
Australia and New Zealand Banking Group analysts expect the foreign exchange markets to remain stable. The root their prediction on the belief that investors are waiting to see whether the ECB enacts a new QE program this Thursday.
Central Banks Reaching Limits of their Stimuli
Insider sources report that the ECB is leaning towards a package that contains a couple of incentives. The first one is a rate cut followed by a pledge that it will keep rates lower for longer. Additionally, the ECB is pondering the compensation of banks in the face of side effects of negated rates.
While this is happening, there is growing concern that central banks are reaching the limits of their stimuli. This is especially true for central banks with negative interest rates and sub-zero long-term sovereign bond yields.
Talks between Beijing and Washington officials later this month are fueling the reigning optimism in the markets at the moment. There has been skepticism, however; with White House trade advisor Peter Navarro suggesting that the process should take its course. However, even with such remarks from White House affiliated individuals, Asian stocks show optimism. Many of them recorded higher prices this week, and the expectation is that it will continue as the talks edge closer.
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