The Japanese yen slumped as the Bank of Japan announced to adopt negative deposit rate on Friday as a part of effort to combat deflation. By adopting negative interest rates, commercial lenders are better to lend out excess reserves they keep with the central bank. The BoJ said that it had not ruled out deeper cuts, but it could cut further into negative territory if necessary. It also added that continuous quantitative easing will be implemented together with the negative rates until reaching the inflation goal. USD/JPY hit 121.68 before settling at 121.12, up 1.95% after the announcement.
The dollar rose against other major currencies on Friday after the U.S. gross domestic product data release that broadly met expectation. The unexpected decision by the Bank of Japan to shift the deposit rate to negative territory supported the dollar’s gain. But the dollar trimmed its gain on Monday after the slow growth in manufacturing disappointed investors for the next rate hike which likely to be in a slower pace. The personal income rose 0.3% as expected but the expenses were 0.0% lower than the previous month’s figure. PCE prices also fell 0.1% and core parts shrank to 0.0%. The manufacturing also stayed lower than the expectation at 48.2. Fed vice chair Stanley Fisher added that it is uncertain for how Federal Reserve to take next decision amid the global outlook being uncertain from structural reformation in China.
The euro gained against the dollar on Monday after disappointing U.S. manufacturing data bringing uncertainty to when Federal Reserve to hike interest rates. The manufacturing slowdown in China and the U.S. spurred concerns on emerging markets and turned the euro bullish. The euro limited its gains after the European Central Bank Governor Mario Draghi mentioning that emerging market risks are increasing and the additional stimulus QE may be necessary due to low inflation in the Eurozone. EUR/USD gained 0.55% at 1.0538 on late Monday.
The Australian dollar traded weaker on Tuesday in Asia as the Reserve Bank of Australia held the interest rates as expected. The central bank held the cash rate at a record low 2% on Tuesday, indicating scope for easier policy if future economic data requires to. AUD/USD traded at 0.7117, down 0.08% after the announcement. Elsewhere, the British pound shortened its loss on Monday with great improvement in manufacturing index. GBP/USD was up 0.43% at 1.4304.
In the coming week, investors will be looking ahead to central bank meeting announcements in the U.K. and Australia as well as U.S. job report to indicate strength in the labor market
Ahead of the coming week, Solforex has compiled a list of these and other significant events likely to affect the markets.
Tuesday, February 2
The Reserve Bank of Australia is to announce the benchmark rate and give rate statement.
The Eurozone is to release data on unemployment rate and producer price index.
The U.K. is to release survey data on construction.
The U.S is to publish data on auto-sales.
Wednesday, February 3
New Zealand is to release its quarterly employment report. The RBNZ Governor Graeme Wheeler is to speak at an event.
Australia is to publish data on trade balance and building permits.
China is to release Caixin PMI manufacturing index.
In Japan, Bank of Japan Governor Kuroda is to speak at an event followed by data release on consumer sentiment.
In the Eurozone, data on service sector and retail sales are to be published.
The U.S. is to produce data on ADP non-farm payroll, PMI service sector, and ISM non-manufacturing sector.
Thursday, February 4
n the Eurozone, ECB governor Mario Draghi is to speak at an event.
The Bank of Japan is to announce the recent monetary policy statements and benchmark rates.
The U.S. is to release data on initial jobless claims, productivity and factory orders.
Friday, February 5
The Reserve Bank of Australia is to publish its monetary policy statement followed by the data release on retail sales.
Germany is to release data on factory orders.
Canada is to produce monthly employment report follow by the trade balance data.
The U.S. is to publish bundle of data on non-farm payroll, unemployment rate, average hour income, trade balance, and consumer sentiment.
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