10 Apr 2014
China data may not be as bad as first appears, BoE expected to hold
FXStreet (London) - The dollar drifted weaker overnight following the release of the federal open market committee’s minutes from its meeting on 18-19 March. While there was little to surprise in the release, the comments from some Federal Reserve officials over the rate hike pace were interpreted as a more dovish tone.
Fed less hawkish than construed
The minutes stated that the upward shift since December in participants' projections of the federal funds rate “could be misconstrued as indicating a move by the Committee to a less accommodative reaction function. However, several participants noted that the increase in the median projection overstated the shift in the projections.”
Most participants expected inflation to return to 2 percent over the next few years, supported by stable inflation expectations and the continued gradual recovery in economic activity.
The minutes downplayed comments made by Fed chairman Janet Yellen that a rate hike could come six months after the winding down of the Fed’s current quatitative easing programme.
Weak Chinese data damaged by overinvoicing
The yen strengthened overnight following the release of weaker-than-expected Chinese trade numbers.
The 6.6 percent year-on-year drop in exports in March was a sharp drop from consensus expectations of a 4 percent gain. In addition, imports fell 11.3 percent.
While the numbers suggest that Chinese demand has weakened even further than predicted, the numbers may have been impacted by unusually strong numbers in 2013 attributed to overinvoicing – the practice of companies submitting fake invoices to dodge Chinese capital controls. While authorities have cracked down heavily on the practice, many attributed it for extremely strong numbers this time last year.
Despite the big miss in expectations, Chinese Premier Li stated that China: “won’t adopt short-term and strong stimulus policies in response to temporary fluctuations in the economy”.
French CPI weakness
The final reading of French CPI came in weak, up just 0.6 percent year-on-year in March and up 0.4 percent on February. Consensus expectations had been for a 0.8 year-on-year and 0.5 percent month-on-month reading. The weaker numbers are attributed to a fall in energy prices as well as weakening food price inflation.
BoE to hold
The Bank of England rate decision at midday is expected to be a non-event, with rates held at 0.5 percent and the BoE asset purchase facility held at GBP375bn and no accompanying statement expected.
Fed less hawkish than construed
The minutes stated that the upward shift since December in participants' projections of the federal funds rate “could be misconstrued as indicating a move by the Committee to a less accommodative reaction function. However, several participants noted that the increase in the median projection overstated the shift in the projections.”
Most participants expected inflation to return to 2 percent over the next few years, supported by stable inflation expectations and the continued gradual recovery in economic activity.
The minutes downplayed comments made by Fed chairman Janet Yellen that a rate hike could come six months after the winding down of the Fed’s current quatitative easing programme.
Weak Chinese data damaged by overinvoicing
The yen strengthened overnight following the release of weaker-than-expected Chinese trade numbers.
The 6.6 percent year-on-year drop in exports in March was a sharp drop from consensus expectations of a 4 percent gain. In addition, imports fell 11.3 percent.
While the numbers suggest that Chinese demand has weakened even further than predicted, the numbers may have been impacted by unusually strong numbers in 2013 attributed to overinvoicing – the practice of companies submitting fake invoices to dodge Chinese capital controls. While authorities have cracked down heavily on the practice, many attributed it for extremely strong numbers this time last year.
Despite the big miss in expectations, Chinese Premier Li stated that China: “won’t adopt short-term and strong stimulus policies in response to temporary fluctuations in the economy”.
French CPI weakness
The final reading of French CPI came in weak, up just 0.6 percent year-on-year in March and up 0.4 percent on February. Consensus expectations had been for a 0.8 year-on-year and 0.5 percent month-on-month reading. The weaker numbers are attributed to a fall in energy prices as well as weakening food price inflation.
BoE to hold
The Bank of England rate decision at midday is expected to be a non-event, with rates held at 0.5 percent and the BoE asset purchase facility held at GBP375bn and no accompanying statement expected.