After some more positive noises from including Stanley Fischer and William Dudley recently, expectations had risen about the Fed chief would deliver any kind of clarification about the posture. The market has also acted cautious before the speech.
Janet Yellen said at the Fed conference, among other things, that the case for a rate hike has been strengthened.
” in light of the continued solid labor market developments and the outlook for economic activity and inflation, I think the arguments for raising the Fed funds rate has strengthened in recent months, “she said.
She said economy “approaching” the Fed’s goal of full employment and stable prices, without being more specific about the specific timing of the next increase.
Based on outlook FOMC continues to expect gradual rate hikes to come. The economic outlook is uncertain and monetary policy is therefore not at any predetermined path.
“Our ability to predict the key rate will evolve over time is quite limited because monetary policy will need to answer the possible disturbances in the economy, “she said.
the market pulled down any expectations about future rate increase. Fed funds futures indicated a probability of 26 percent that the Fed will hike in September and 53 percent said they have raised before the end of the year, down from 30 and 55 per cent before Yellen-speech.
In the currency market dropped dollar net marginally to 100.20 against the yen and 1.1310 against the euro, compared to the prior Yellen.
“There is no time commitment to increase. They envision to a lower neutral interest rate in the US. It does not give the market some reason to aggressively buy dollars, “said Richard Cochinos at Citigroup to Bloomberg News.
John Hardy Saxo Bank noted that if the market concluded that the Fed only increases the probability of a raise or two to “get rid of it” and nothing else, then the dollar effect is not so great.
Regional Fed members as Peter Kaplan and Loretta Mester, was out on Friday and spoke in general terms that it is appropriate to begin to raise interest rates, but also the more specific set time horizon.
US data Friday showed that GDP grew by 1.1 per cent annual rate in the second quarter, in line with forecasts and down from 1.2 percent in the first estimate.
the downward revision came after weaker residential investment, a larger decline in the stocks and widened the trade deficit, which was offset by stronger private consumption and less decline in business investment than in the first estimate. Core inflation (core PCE) rose 1.8 percent, 1.7 expected.
In Europe Consumer confidence in both France and Germany, while French GDP was unchanged in the second quarter, in line with the first estimate. The money supply in EMU rose less than expected. The increase in lending rose slightly on business but was unchanged for households, the continued depressed levels.
ECB is next policy meeting on September 8, with new forecasts. The day before, September 7, the Riksbank announces its next monetary policy statement.
Swedbank believes that strong domestic economy, inflation slightly above forecast and a weaker krona means that the Riksbank can sit still at the next interest rate meeting. Preparedness remains high and global development is highly uncertain.
“The Swedish perspective, , not least in view of the crown, the ECB’s future actions of great importance. The ECB has recently launched a series of relief measures. an extension of these, beyond March 2017, which we see as likely would clearly increase the pressure on the National Bank to extend its bond purchases, “wrote Swedbank in a market letter.
Even SEB believes that the Riksbank is still in September, but emphasizes that the ECB’s actions will weigh heavily thereafter.
“Our main scenario is continued to Board – in October – extend the QE program in June 2017 and buying bonds for an additional 30 billion, “wrote SEB.
Swedish interest rates were at the close 1-2 points down while the crown had strengthened 3 cents to 8.37 against the euro and 1 penny to 9.48 against the dollar.
the pound strengthened to 1.3230 against the dollar, and ensured all week talking about a gain of just over 1 percent.
“the pound has responded outlook (after Brexit) is not as panicked as people thought. In the medium and long term, there are continued risks to the UK economy remains significant, particularly in terms of investment growth, “said Jane Foley at Rabobank Bloomberg News.
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