Forex News
On Friday, the People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead at 7.0875 compared to the previous day's fix of 7.0905 and 7.1154 Reuters estimate.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
Bank of Japan (BoJ) Governor Kazuo Ueda said on Friday that the Japanense Yen (JPY) weakness is increasingly feeding into import costs and consumer inflation, adding that currency swings have a bigger impact than in the past.
Key quotes
Compared with past, companies are becoming more keen to raise wages and prices.
Against such backdrop, foreign exchange moves could have bigger impact on prices.
We must also be mindful of the chance foreign exchange moves could affect inflation expectations, underlying inflation.
Will scrutinize impact of foreign exchange volatility on prices.
Market reaction
As of writing, the USD/JPY pair is down 0.21% on the day at 157.25.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
- Gold price trades flat around $4,080 in Friday’s early Asian session.
- A stronger-than-expected US employment report dampened prospects for a Fed rate cut in December.
- Safe-haven flows and central bank buying could support the Gold price.
Gold price (XAU/USD) holds steady near $4,080 during the early Asian session on Friday. The upside for the precious metal might be limited as strong US jobs data dims Federal Reserve (Fed) rate cut expectations. Traders brace for the preliminary reading of the US S&P Global Purchasing Managers Index (PMI) and Michigan Consumer Sentiment Index report, which will be released later on Friday.
Nonfarm Payrolls (NFP) rose by 119,000 jobs in September after a downwardly revised 4,000 drop in August, according to the Bureau of Labor Statistics (BLS) on Thursday. This reading came in better than the estimation of 50,000. The Unemployment Rate in the US climbed to 4.4% in September from 4.3% in August. The report was delayed due to the US government shutdown.
Investors scaled back expectations for an interest rate cut from the Fed next month following a solid job report. This, in turn, lifts the US Dollar (USD) and weighs on the USD-denominated commodity price. Markets are now pricing in nearly a 39% probability of a 25 basis points (bps) rate cut at the Fed's December meeting, according to the CME FedWatch tool.
"This (data) essentially confirms what the Fed discussed in October — a slowing yet stable jobs market. A December rate cut now appears increasingly unlikely," adding pressure to gold, said Peter Grant, vice president and senior metals strategist at Zaner Metals.
Traders will take more cues from the US S&P Global PMI reports later on Friday. Any signs of weakness in the US economy could boost the Gold price, a traditional safe-haven asset. Furthermore, ongoing gold buying from major central banks also supports the yellow metal. The People's Bank of China (PBOC) added 1.2 tonnes of gold in September and reported a purchase for the 12th consecutive month in October, officials said.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Philadelphia Federal Reserve President Anna Paulson said that she is approaching December’s policy meeting “cautiously,” adding that the central bank must carefully balance slowing labour momentum against lingering inflation risks.
Key quotes
Rate cuts so far have been appropriate, but each raises the bar for the next cut.
With upside risks to inflation, downside risks to employment, monetary policy must walk a fine line.
On the margin still more worried about labor market than inflation.
Expect to learn a lot between now and December Fed meeting.
US Economy doing ok.
In thinking about monetary policy over the longer arc, focused on balancing inflation, labor market risks.
Bifurcation in economy may have intensified, lower- and moderate-income households struggling.
September labor market report 'encouraging' on balance.
Tariff effects smaller than feared, overall demand environment helping to keep a lid on inflation.
Aggregate growth more dependent than usual on highest earners, growth outlook particularly sensitive to equity valuations.
Market reaction
At the time of writing, the US dollar Index (DXY) is trading around 100.15, down 0.06% on the day.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
- GBP/USD caught a weak foothold near 1.3050 on Thursday.
- The wind got sucked out of Fed rate cut hopes after an upswing in backdated NFP jobs data.
- Friday will round out with the week with a rolling PMI release schedule and UK Retail Sales.
GBP/USD cut off a four-day losing streak on Thursday, catching a thin technical bounce from the 1.3050 region. Cable price action is still caught on the bearish side of long-term moving averages, but investors are taking a breather ahead of Friday’s data docket.
US Nonfarm Payrolls (NFP) jobs data from September was released on Thursday, much later than usual thanks to the US government’s latest funding shutdown. The data came in stronger than expected, showing 119K net job gains through September, well above the expected 50K. The upswing in NFP jobs gains functionally closes the door on a Federal Reserve (Fed) interest rate cut on December 10, which would have required stronger signs of labor market deterioration.
Coming up on Friday: UK Retail Sales, UK and US PMIs, UoM sentiment
An otherwise one-sided trading week for GBP/USD traders will round things out with a fresh batch of UK Retail Sales data at 07:00 GMT. Monthly Retail Sales figures are expected to ease back again in October, keeping in-line with the UK’s recent habit of missing the mark on economic data releases.
UK S&P Global Purchasing Managers Index (PMI) activity survey results will follow up at 09:30 GMT. UK PMIs for both the Manufacturing and Services components are expected to tick lower as economic activity struggles on within Europe’s largest non-EU economy.
US S&P Global PMI data will round out the week at 14:45 GMT. Services PMI data is expected to moderate and hold flat near 54.8, while Manufacturing activity expectations are forecast to decline to 52.0 from 52.5.
The latest University of Michigan (UoM) Consumer Expectations and Sentiment Indexes will also get an update at 15:00 GMT on Friday. Things have been not-great on the consumer sentiment side of the American economic data docket, and the trend is more or less expected to continue through November.
GBP/USD daily chart
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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