Friday, January 30, 2015

Bloomberg News (View) - Central Bankers, Unite!

In September, the world will commemorate the 30th anniversary of the Plaza Accord. That agreement to weaken the dollar and boost the yen still stands as a landmark of economic cooperation -- something that's sadly lacking in our chaotic and deflationary times.
This week’s panicky move by Singapore's central bank shows why it may be time for another round of currency talks. Thirteen days after the Swiss National Bank let the franc soar, the Monetary Authority of Singapore unexpectedly eased policy and allowed the Singapore dollar to weaken. The unilateral moves disrupted markets around the world, adding to the general climate of volatility.
While the two banks’ moves may seem divergent, they’re battling the same problem: fallout from too much liquidity zooming around the globe. Thus far, the debate surrounding quantitative easing has focused on the risks to big economies -- the U.S., Japan and the euro zone. But actions by "the major advanced economy central banks portend high levels of capital flow and currency volatility in global financial markets," says Cornell University's Eswar Prasad, author of "The Dollar Trap." "Emerging markets and small economies with open capital accounts, such as Singapore and Switzerland, are likely to feel whiplash effects from this volatility."
In the last year alone, about $14 billion of overseas hot money poured into equity markets in Indonesia, the Philippines and Thailand. Taiwan's equity bourses have seen over $5 billion of foreign buying. These flows could easily reverse as soon as the Federal Reserve begins hiking interest rates or Greece's troubles push the euro back into crisis.
That's making it devilishly hard for smaller nations to manage risks to their economies -- and driving them to act before competitors do. The fact that highly conservative Singapore felt compelled to surprise the market is a sign of how worried officials there must be.
The problem is that as more and more nations slash rates in an attempt to keep their export-focused economies competitive, returns are diminishing. Eventually, nations trying to out-stimulate each other are, in central banker parlance, pushing on a string. QE programs are already generating more financial-market side effects -- including excessive volatility, bubbles and impossibly low bond yields -- than actual growth.
This should worry the big economies as well. I'm reminded of a fascinating lunch I had with the late Karl Otto Poehl in October 1998. As the head of Germany's Bundesbank in 1985, Poehl was one of the Plaza Accord principals. During our chat (right across from New York's Plaza Hotel, where the talks took place), he offered a useful analogy involving wine grapes. Vineyards often surround vines with rose bushes, he explained, as an early-warning system. Since rose bushes are vulnerable to disease, wine makers know their grapes are in trouble long before disaster strikes. Small, open economies like Singapore and Switzerland serve a similar role for the global economy.
Asking countries to work together to head off a potential currency war will be a tough sell. Still, the need for greater coordination should be obvious. Central bankers could calm volatility by addressing deep fissures over exchange rates, budget- and current-account deficits and other imbalances. Signs of cooperativeness -- and in particular a united approach to fighting deflation -- would cheer global markets. Perhaps policymakers might even gin up some out-of-the-box ideas, such as pegging the yen to the dollar in order to battle deflation, or establishing a regional exchange-rate system in Southeast Asia.
"Some sort of international coordination may be preferable at this point to a growing wave of competitive devaluations," says Russell Green of Rice University's Baker Institute (named after James Baker, U.S. Treasury secretary at the time of the Plaza Accord). In particular, Green suggests, the IMF “needs to step forward and establish some ground rules. Checking exchange rate competition is one of its major mandates, so it needs to provide the intellectual leadership that others can coalesce around."
Perhaps as a unit, the gathered central bankers could even shame their governments into repairing economies once and for all. "The problem remains that central banks are being asked to do most of the heavy lifting in terms of propping up growth and prices, and monetary policy invariably has spillovers across national borders," Prasad says. "What I would wish for is a better mix of policies in the major economies, with less reliance on monetary policy." Time to book rooms at the Plaza.

Thursday, January 29, 2015

BBC News - Eurozone needs to 'share risks', warns Bank governor

Bank of England governor Mark Carney has warned the current structure of the eurozone puts it in an "odd position".
Mark Carney
Mr Carney said sharing a currency without also sharing decisions on taxes and spending did not work.
"For complete solutions to current and potential future problems the sharing of fiscal risks is required," he told an audience in Dublin, Ireland.
Currently, EU members share the euro currency, but decisions on spending are made at a national level.
Mr Carney said "it is no coincidence" that effective currency unions tended to have centralised fiscal authorities.
"European monetary union will not be complete until it builds mechanisms to share fiscal sovereignty," he said.
He said the current system in the eurozone made it stand out from federal countries like the US, Canada and Germany, where a central government has the ability to transfer significant financial resources to constituent states as-and-when those states run into severe difficulties.
"Without this risk sharing, the euro area finds itself in an odd position," he added.
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Analysis: BBC economics editor Robert Peston:
In saying that monetary union cannot work without fiscal union - or the ability and willingness of countries with stronger public finances to support those that are struggling to grow under the burden of big debts - he is in effect saying that Germany ought to do more to support the likes of Italy, Spain and France.
There is nothing new in Mr Carney's argument. Almost from the moment the eurozone was created, economists and politicians have argued that monetary union in Europe could not endure over the long term without fiscal and political union - or the transfer of national taxing and spending powers to a central decision-making body.
But it is the timing of the intervention which is striking, coming as it does a few days after the European Central Bank launched more than a billion euros of public-sector and private-sector debt purchases, or quantitative easing, as the eurozone continues to flat-line, and as eurozone countries led by Germany baulk at providing further financial help to Greece.
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The speech comes just days after after the European Central Bank said that it would inject at least €1.1 trillion (£834bn) into the ailing eurozone economy, in a bid to encourage spending.
Mr Carney said the ECB's actions were "timely and welcome", but warned the "ECB alone cannot eliminate the risks of a prolonged stagnation".
"Europe needs a comprehensive, coherent plan to anchor expectations, build confidence and escape its debt trap. That plan begins but does not end with the monetary policy boldness of the ECB," he added.
He also acknowledged that Europe's leaders did not currently foresee fiscal union as a part of monetary union.
"Such timidity has costs," he concluded.

Wednesday, January 28, 2015

Reuters News - Exclusive: China plans to set 2015 growth target at 'around 7 percent' - sources

(Reuters) - China plans to cut its growth target to around 7 percent in 2015, its lowest goal in 11 years, sources said, as policymakers try to manage slowing growth, job creation and pursuing reforms intended to make the economy more driven by market forces.
The growth target, which is set to be announced by Premier Li Keqiang at the annual parliament session in March, was endorsed by top party leaders and policymakers at a closed-door Central Economic Conference in December, said a number of people with knowledge of the outcome of meeting who spoke to Reuters.
The target, which is in line with market expectations, has not been previously reported.
"This year's economic growth target will be around 7 percent, but the 7 percent should be the bottom line," said one of the sources, an influential economist who advises the government.
"The government will have to balance economic growth, employment and structural reforms this year," said the economist, who requested anonymity due to the sensitivity of the matter.
The use of "around" to qualify the growth forecast repeats terminology used last year by authorities to show they were not fixed on a hard target.
Although the target was endorsed in December, it is still possible for it to be adjusted before the parliament convenes.
The State Council Information Office, the public relations arm of the government, had no comment on the growth forecast when contacted by Reuters.
Officials have said slowing growth reflects reforms to put the economy on a more sustainable path, but they are wary of a sharp slowdown that could cause job losses and debt defaults.
China's pursuit of rapid growth in recent decades has helped fuel overinvestment in some sectors and a sharp build-up of debt by local governments. Almost $7 trillion was wasted on ineffective investment since 2009, a government official and economist said last year.
Central Bank Governor Zhou Xiaochuan has acknowledged a lower growth target was on the cards for 2015, saying it would be discussed by the parliament in March.
The government is also looking at lowering its forecast for consumer price inflation to around 3 percent, the sources said.
Consumer prices rose 2 percent in 2014, coming in well below a target of 3.5 percent as deflation fears intensified, while producer prices have been falling for almost three years.
"Fighting deflation could be the top priority in the near term, but that won't contradict with structural adjustments," said another source, who is a senior economist at a well-connected think-tank in Beijing.
The last time China set its national growth target at 7 percent was in 2004, when theeconomy actually grew 10.1 percent. The growth target was 7.5 percent last year.
Data last week showed growth in the world's second-largest economy plumbed a 24-year low of 7.4 percent in 2014, and a Reuters poll of more than 40 economists found growth was expected to slow to 7 percent this year and 6.8 percent in 2016.
Some local governments have already lowered their growth targets for this year, often after significantly undershooting their 2014 goals, and Shanghai said it would not even set a growth target because its focus was on reforms and developing a free-trade zone.
Fifteen of 17 regions, provinces and municipalities, including Beijing, that have released local growth plans for 2015 have cut their GDP targets by between half a percentage point to 2.5 percentage points from last year, local media reports and government websites showed.

(Additional reporting by Judy Hua and Koh Gui Qing; Editing by John Mair and Alex Richardson)

Tuesday, January 27, 2015

BBC News - Greece: Germany warns over debt commitments

Germany has warned the new Greek government that it must live up to its commitments to its creditors.
German government spokesman Steffan Seibert said it was important for Greece to "take measures so that the economic recovery continues".
His comments were echoed by the head of the eurozone finance ministers' group.
The far-left Syriza party, which won Sunday's poll, wants to scrap austerity measures demanded by international lenders, and renegotiate debt payments.
However Jeroen Dijsselbloem, president of the Eurogroup, said on Monday: "There is very little support for a write-off in Europe."
Speaking after a meeting of eurozone finance ministers in Brussels, he said members should "abide by the rules and commitments".
Meanwhile the German government said that Greece's new leadership should take measures to ensure the economic recovery continues.
"A part of that is Greece holding to its prior commitments and that the new government be tied in to the reform's achievements," government spokesman Steffan Seibert said.
Market reaction
Syriza's victory has caused some concern in the financial markets.
In a volatile start to the week the euro briefly touched an 11-year lowagainst the dollar, before recovering to trade almost 0.7% higher against the US currency.
In Athens the stock market closed 3.2% lower, with particularly heavy losses for Piraeus Bank which fell 17.6% and Alpha Bank which fell 11.6%.
Currency trader in Tokyo
Syriza leader Alexis Tsipras helped calm investors' nerves when he said in a speech that he wanted negotiation, not confrontation, with international lenders.
"The new Greek government will be ready to co-operate and negotiate for the first time with our peers a just, mutually beneficial and viable solution," Mr Tsipras said following his election win.
The troika of lenders that bailed out Greece - the European Union, European Central Bank, and International Monetary Fund - imposed big budgetary cuts and restructuring in return for the money.
But Mr Tsipras said: "The troika for Greece is the thing of the past."
Analysis: Robert Peston, BBC economics editor
If Syriza were to win its negotiations with the rest of the eurozone, other anti-austerity parties would look more credible to voters. The victory of protectionist Marine le Pen in France's presidential election would be an interesting test of markets' sangfroid.
And if Syriza were to lose in talks with Brussels and Berlin, and the final rupture of Greece from the euro were to take place, investors might well pull their savings from any eurozone country where nationalists are in the ascendant.
So why are investors not in a state of frenzied panic? Why have the euro and stock markets bounced a bit? One slightly implausible explanation is that investors believe the eurozone would actually be stronger without Greece, so long as no other big country followed it out the door.
More likely is that they believe reason will prevail, and Berlin will sanction a write-off of Greece's excessive debts.

Monday, January 26, 2015

Bloomberg News - Prices in Europe Continue to Sink, Showing Why Draghi Had to Act

Photographer: Martin Leissl/Bloomberg
Mario Draghi, president of the European Central Bank
Mario Draghi’s reasons for flooding the euro area with money will be laid bare once again this week.
Days after the European Central Bank president announced a 1.1 trillion-euro ($1.2 trillion) stimulus plan, data may show prices in the euro area are falling at close to the fastest pace since the shared currency was introduced 16 years ago.
Sinking prices, together with stubbornly high unemployment, will reinforce the picture of economic weakness that convinced the Frankfurt-based central bank to go ahead with the controversial purchase of government bonds. Anticipation of more action from Draghi to prevent a deflationary spiral lifted German investor confidence this month and that may be echoed in a euro-wide sentiment index on Thursday.
“We’re seeing a moderate recovery, but the big question is, is it strong enough to get inflation back up over the relevant time horizon?” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “It helps the story if things start to move a bit more in the right direction and then he can get another round of Super Mario credit.”
While the ECB’s decision to start full-blown quantitative easing was widely anticipated, the size of the program exceeded forecasts. With monthly purchases of 60 billion euros until at least September 2016, the total was double economists’ projections.
Even with that scale, it’s unclear whether the stimulus will be enough to push inflation back toward the ECB’s goal of just under 2 percent.

Internal Models

Professional forecasters surveyed by the ECB before the QE announcement saw price growth of 0.3 percent this year and 1.1 percent in 2016. The bond-buying program is seen adding 0.4 percentage point and 0.3 percentage point respectively, according to a euro-area central bank official who has seen the ECB’s internal calculations.
In a Bloomberg News survey of 38 economists, the median forecast for January is for prices to drop 0.5 percent from a year earlier. That would follow a 0.2 percent decline in December and mark the second-biggest decrease since the creation of the euro in 1999. The record drop was in thedepths of the recession, when prices fell 0.6 percent in July 2009. The data will be published at 11 a.m. in Luxembourg on Friday.
A separate report will show that unemployment in the region held at 11.5 percent in December, still near its record high of 12 percent. Persistently high joblessness, along with a backlash against austerity, was one of the key factors behind the victory of the Syriza party in elections in Greece on Sunday.

German Prices

Germany’s statistics office will probably report on Thursday that prices fell an annual 0.2 percent this month. That would be the first negative inflation rate in Europe’s largest economy for more than five years. In Spainprices plunged 1.5 percent, according to a survey before data on Friday.
“Inflation is expected to remain very low or negative in the months ahead,” Draghi said at a press conference on Jan. 22. “Such low inflation rates are unavoidable in the short term, given the recent very sharp fall in oil prices.”
ECB Executive Board member Benoit Coeure said in a Bloomberg Television interview on Friday that QE could be expanded or extended if the impact on inflation isn’t judged enough. Governing Council member Ignazio Visco said the ECB is “open-ended” about asset purchases.

Confidence Rising

Crude oil has fallen by more than half from a peak in June. While that’s pushed down inflation, it’s also lowering costs for companies and consumers and may help stimulate the region’s economy.
The Ifo institute’s German business confidence index rose to 106.5 from 105.5 in December, economists forecast. That would be a third consecutive improvement and take the gauge to the highest since July. Euro-area economic sentiment may also advance to a six-month high.
“The message from the ECB that it will do whatever it takes to deliver price stability may be very important,” David Mackie and Malcom Barr, economists at JPMorgan Chase & Co. in London, wrote in a note. “It looks as if the ECB stimulus has come at the precise time that the euro-area business cycle is making a turn upwards.”
Still, growth in the region may remain sluggish. Economists in Bloomberg’s monthly survey predict 0.3 percent expansion this quarter and next after 0.2 percent in the last three months of 2014.
“Draghi has given himself at least until September 2016 for the program to generate any effect,” Teunis Brosens, an economist at ING Bank NV in Amsterdam, said in a telephone interview. “The ECB is in it for the long haul here.”
To contact the reporters on this story: Alessandro Speciale in Frankfurt; Scott Hamilton in London at

Friday, January 23, 2015

Reuters News - Disinflation, weaker growth put pressure on Asian central banks

Workers install the chassis along a production line at a truck factory of Anhui Jianghuai Automobile Co. Ltd (JAC Motors) in Hefei, Anhui province May 5, 2014. REUTERS/Stringer
Workers install the chassis along a production line at a truck factory of Anhui Jianghuai Automobile Co. Ltd (JAC Motors) in Hefei, Anhui province May 5, 2014.
(Reuters) - Chinese factories were forced to cut prices for the sixth straight month in January to sell their products, while economic growth in South Korea slowed sharply, raising the prospect of more policy easing from major central banks in Asia.
The weak manufacturing reading from China added to expectations that Beijing will have to announce fresh stimulus measures soon, and came a day after the European Central Bank took the ultimate leap and launched a huge bond-buying program as it tries to stave off deflation and kick-start growth.
China's manufacturing growth stalled for the second month in a row, the HSBC/Markit Flash Manufacturing Purchasing Managers' Index (PMI) survey showed on Friday, while the sub-index for input prices fell to the lowest since the global financial crisis, reflecting a tumble in oil prices that is spreading disinflationary pressure throughout the globe.
Chinese companies again cut output prices, but more deeply than in December, eroding their profit margins and pointing to faltering demand.
Analysts at Nomura saw more downside pressure on China's producer prices, "enhancing our concerns over deflation".
"This looks like a trend and it will affect core inflation at some stage. So the PBOC will very likely react to such deflation concerns," said Chang Chun Hua, an economist at Nomura, adding he expected the central bank to cut commercial banks' reserve requirement ratio (RRR) in the first quarter to free up more money to lend.
News out of South Korea made for uncomfortable reading as well. Asia's fourth-largesteconomy grew a seasonally adjusted 0.4 percent in the October-December period on-quarter, less than half of the 0.9 percent gain in the third quarter.
A senior statistics official from the central bank pointed to the uncertainty facing the trade-reliant economy, not least from the slowdown in China, South Korea's biggest export market.
The Bank of Korea is widely expected to cut interest rates in the first half of this year.
In Bangkok, Thailand's finance minister urged the central bank to cut rates to help the sputtering economy and said he was worried that the strength of the baht currency will hurt exports, a key growth engine.
In Australia, investors now see a bigger chance of a cut after surprise easing from Canada earlier this week, while India last week cut rates earlier than expected and hinted at more to come.
The lone bright spot in Asia was Japan, where manufacturers saw a pick up in domestic and overseas orders this month and hired more staff.
Still, the Bank of Japan is struggling to reach its ambitious 2 percent inflation target two years into so-called 'Abenomics' – a mix of aggressive monetary and fiscal policy plus structural reform aimed at pulling the country out of decades of deflation, a fate other global policymakers are desperate to avoid.
Indeed, earlier this week, the BoJ slashed its inflation forecasts.
While the Japanese central bank signaled it was in no hurry to add to its massive asset-buying scheme, some analysts suspect it will have to do more later in the year.
"With very low inflation, or even negative inflation and some slack remaining, we expect that advanced economy monetary policy will continue to loosen overall," analysts at Citi wrote in a note to clients.
"ECB QE will probably be scaled up further over time. We also expect the BoJ to expand QE further around mid-year."
Friday's reports in Asia came a day after the European Central Bank launched a full-scale attack on the threat of deflation, pledging to pump hundreds of billions in new money into a sagging euro zone economy.
While surveys on the euro zone manufacturing sector due later on Friday will not reflect the ECB's latest measures, any disappointment would only serve to further justify its bold action.
Similar reports on the U.S. factory sector may highlight concerns that its economy could be the only engine driving global growth this year.


Thursday, January 22, 2015

BBC News - ECB expected to inject up to €1 trillion into eurozone

The European Central Bank (ECB) is expected to announce it will inject up to €1 trillion euros into the ailing eurozone economy.
euro symbol outside ECB headquarters
The ECB could purchase government bonds worth up to €50bn (£38bn) per month until the end of 2016 - double the amount previously expected.
Creating new money to buy government debt, or quantitative easing (QE), should reduce the cost of borrowing.
The eurozone is flagging and the ECB is seeking ways to stimulate spending.
Lowering the cost of borrowing should encourage banks to lend and eurozone businesses and consumers to spend more.
Big bazooka
It is a strategy that appears to have worked in the US, which undertook a huge programme of QE between 2008 and 2014.
The UK and Japan have also had sizeable bond-buying programmes.
What is a government bond?
Governments borrow money by selling bonds to investors. A bond is an IOU. In return for the investor's cash, the government promises to pay a fixed rate of interest over a specific period - say 4% every year for 10 years. At the end of the period, the investor is repaid the cash they originally paid, cancelling that particular bit of government debt.
Government bonds have traditionally been seen as ultra-safe long-term investments and are held by pension funds, insurance companies and banks, as well as private investors. They are a vital way for countries to raise funds.
Up until now, the ECB has resisted, although the bank's president, Mario Draghi, reassured markets in July 2012 by saying he would be prepared to do whatever it took to maintain financial stability in the eurozone, nicknamed his "big bazooka" speech.
Since then, the case for quantitative easing has been growing.
Earlier this month, figures showed the eurozone was suffering deflation, creating the danger that growth would stall as businesses and consumers shut their wallets, as they waited for prices to fall.
Whose debt?
The ECB's bond-buying programme is likely to begin in March, although the final decision over whether to start the measures will be taken at a meeting of the bank's 25-member policy-making board on Thursday.
There remains a possibility that the German members of the board will object to the plan. They would prefer any government bonds purchased to be held by national governments, rather than centrally by the ECB. That would reduce the risk of a default by struggling peripheral countries, such as Greece and Italy, being shouldered by the richer members of the eurozone.
On Wednesday, the Organisation for Economic Co-operation and Development (OECD) urged Mr Draghi to pursue uncapped quantitative easing.
Angel Gurria, secretary-general of the OECD, told the World Economic Forum in Davos on Wednesday: "Let Mario go as far as he can. I don't think he should cap it. Don't say 500bn (euros). Just say, 'As far as we can, as far as we need it.'"

Wednesday, January 21, 2015

Bloomberg News - Is Dollar Next? Investors Reassess After Swiss Shock: Currencies

Photographer: Ron Antonelli/Bloomberg
Pedestrians walk past restaurants and shops on East 4th Street in downtown Cleveland, Ohio, U.S. A small downturn in the U.S. economy, “just enough to make people say maybe rates aren’t moving higher, the Fed is on hold -- that could take some of the sheen out of the dollar’s shine,” Greg Peters, a senior investment officer at Prudential Financial Inc.’s fixed-income business in Newark, New Jersey, said Jan. 15 by phone.
After Switzerland shocked markets by scrapping its currency cap, investors are beginning to ask whether a policy surprise may be lurking for the dollar, too.
Samson Capital Advisors LLC said the Swiss move, which sent the franc surging as much as 41 percent against the euro last week, was “a good reminder” of the risks of following the herd, just as speculators pushed bets on a dollar rally to a new high. A shock from the Federal Reserve, such as raising interest ratesless quickly than investors expect, may derail the greenback after it advanced to the highest in a decade, State Street Global Advisors Inc. warned.
“People have to be re-assessing what their positions are,” Jonathan Lewis, chief investment officer at New York-based Samson, which has $7.4 billion in assets, said by phone on Jan. 16. In the case of Switzerland, “people were betting billions of dollars on the kindness of strangers, people they’d never met, whose names they couldn’t pronounce.”
Bloomberg’s Dollar Spot Index -- which tracks the U.S. currency against the euro, yen and eight others -- is headed for a seventh straight monthly advance on the assumption the Fed will raise its zero to 0.25 percent benchmark rate in coming months. At the same time, traders expect Europe and Japan to debase their currencies by flooding markets with more cash.
Only now, after being shocked by the Swiss National Bank, some investors are asking: What if we’re wrong?

Rate Expectations

A small downturn in the U.S. economy, “just enough to make people say maybe rates aren’t moving higher, the Fed is on hold -- that could take some of the sheen out of the dollar’s shine,” Greg Peters, a senior investment officer at Prudential Financial Inc.’s fixed-income business inNewarkNew Jersey, said Jan. 15 by phone. His division oversees $534 billion of bonds.
It’s the extent of the dollar positioning that’s causing angst.
Hedge funds and other large speculators pushed net wagers on the dollar strengthening versus eight major peers to a record 448,675 contracts in the week ending Jan. 13, according to the latest data from the Commodity Futures Trading Commission in Washington.

Anticipating Gains

Forecasts in Bloomberg surveys still see the U.S. currency gaining versus all except 10 of its 31 most-traded peers by year-end, after climbing against all of them in 2014.
Bloomberg’s dollar index was at 1,141.78 at 7:43 a.m. in London, after closing at 1,147.54 on Jan. 8, the highest since it started at the end of 2004. Even so, a trade-weighted measure of the greenback versus the currencies of its major trading partners remains short of its peaks in 2009, suggesting the dollar rally has further to go.
This has helped convince investors to speculate on a stronger dollar and, some say, left them vulnerable to the whims of policy makers.
“If we do have outcomes, either from the Fed that are less hawkish, or outcomes from theEuropean Central Bank that are less dovish than are expected, those two could conspire” to hurt the dollar against the euro, Collin Crownover, the Boston-based head of currency management at State Street, which oversees about $2.4 trillion, said by phone on Jan. 16.
That same day, the euro tumbled to an 11-year low of $1.1460 on speculation the ECB is preparing to announce currency-depreciating sovereign-bond purchases.

Fed ‘Patience’

There are already signs the U.S. central bank is pulling back from an imminent rate increase.
Fed officials urged “patience” on monetary policy at their December meeting, noting risks to the economy from lower oil prices and weak overseas growth. Futures contracts now show about a 50 percent chance the U.S. will raise rates to 0.5 percent or higher before October, while at the end of last year traders were betting on a September increase.
Bullish-dollar positioning may convey a sense of déjà vu among investors.
Speculators boosted positions on the franc weakening against the dollar to the highest in 1 1/2 years this month, CFTC data show, only to be burned by a 21 percent jump to a more than three-year high on Jan. 15. The franc also posted an unprecedented 23 percent rally against the euro that day after Switzerland abandoned the cap that had been in place since 2011.
The Swiss announcement was all the more unexpected because, two days earlier, SNB Vice President Jean-Pierre Danthine re-affirmed the currency peg as a “pillar of our monetary policy.” Central-bank President Thomas Jordan’s insistence that surprise was necessary only sowed more doubt in the minds of investors about their other currency positions.
“Although Fed expectations continue to be shifted back in the markets, FX probably hasn’t really focused on that,” Derek Halpenny, the London-based head of European markets research at Bank of Tokyo-Mitsubishi UFJ, said by phone Jan. 15. “That could be a catalyst for some of the demand for dollars coming off.”
To contact the reporters on this story: Rachel Evans in New York at; Lananh Nguyen in New York at
To contact the editors responsible for this story: Dave Liedtka at Paul Armstrong, Kenneth Pringle