Lingering doubts about the European rescue plan have gathered momentum in the past few sessions, with the latest concerns about implementation and viability of the proposals triggering a rapid sell-off in risk yesterday evening. EURUSD was naturally one of the hardest hit pairs in the currency space, tumbling quickly to lows of 1.3010; in addition, sovereign bond yields rebounded higher and equity markets were subdued.
The glum mood persisted into last night’s FOMC meeting, where rates were kept on hold at 0.25% and no further easing measures were discussed or introduced. Without the glimmer of hope that the Fed would inject any extra stimulus into the economy, the sell-off in risk correlated assets accelerated, and leaves markets in a gloomy mood going into the holiday period. Coming into today’s session, equity markets are still struggling to recover yesterday’s losses; with the Nikkei -0.4%, Hang Seng flat on the day, and Shanghai Composite -0.9%.
In today’s session, the Norges bank is scheduled to announce its latest monetary policy decision – and markets are anticipating that there will be a 25bps cut in interest rates to 2.00%. Although the expectations for a cut are not ubiquitous (5 of the 17 analysts polled by Bloomberg expect an unchanged rate decision), we think it is a very likely scenario. With Norwegian CPI moderating over the past couple of months, industrial production disappointing in October, and the ECB already cutting rates last week, the argument to ease monetary policy has been made very compelling.
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The glum mood persisted into last night’s FOMC meeting, where rates were kept on hold at 0.25% and no further easing measures were discussed or introduced. Without the glimmer of hope that the Fed would inject any extra stimulus into the economy, the sell-off in risk correlated assets accelerated, and leaves markets in a gloomy mood going into the holiday period. Coming into today’s session, equity markets are still struggling to recover yesterday’s losses; with the Nikkei -0.4%, Hang Seng flat on the day, and Shanghai Composite -0.9%.
In today’s session, the Norges bank is scheduled to announce its latest monetary policy decision – and markets are anticipating that there will be a 25bps cut in interest rates to 2.00%. Although the expectations for a cut are not ubiquitous (5 of the 17 analysts polled by Bloomberg expect an unchanged rate decision), we think it is a very likely scenario. With Norwegian CPI moderating over the past couple of months, industrial production disappointing in October, and the ECB already cutting rates last week, the argument to ease monetary policy has been made very compelling.
By
M.Zohaib Gadit
Forex Trading Consultant
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