Summer might be hot on the currency market / News / The Foreigner

Summer might be hot on the currency market. It is usually quiet for the international currency markets in the summer. But the Greek crisis, the possible increase of the Fed interest rate and the likely weakening of the yen against the dollar suggest that things may not be particularly tranquil this year. The most obvious risk factor needing immediate attention concerns the outcome of negotiations between Greece and its creditors. The strength of the Swiss franc, as well as the European markets for stocks and bonds markets, will also impact markets in case there is no movement towards an agreement, or there is a total or partial failure of debt payments. Moreover, the factor most likely to influence the international currency markets concerns the timing and speed of US Federal Reserve interest rate raise. The market slightly increased expectations for a federal funds rate before the end of the year even after the report of the relatively high level rate of employment in the US in May.

forex, currency, money, markets



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Summer might be hot on the currency market

Published on Friday, 12th June, 2015 at 16:32 under the news category, by Marit Fosse.

It is usually quiet for the international currency markets in the summer. But the Greek crisis, the possible increase of the Fed interest rate and the likely weakening of the yen against the dollar suggest that things may not be particularly tranquil this year.

Currency exchange
As the weak krone is better news for Norwegian exports, summer holiday purchases are dearer for the Scandinavian country's inhabitants.Currency exchange
Photo: Images Money/Flickr


The most obvious risk factor needing immediate attention concerns the outcome of negotiations between Greece and its creditors. The strength of the Swiss franc, as well as the European markets for stocks and bonds markets, will also impact markets in case there is no movement towards an agreement, or there is a total or partial failure of debt payments.

Moreover, the factor most likely to influence the international currency markets concerns the timing and speed of US Federal Reserve interest rate raise. The market slightly increased expectations for a federal funds rate before the end of the year even after the report of the relatively high level rate of employment in the US in May.

Market consensus is that the Fed will put an increase in September in place, though this might not before December, with a 0.25% increase in its key rate. Then there is the possibility of perhaps two increases up to the end in 2016.

We may see an evolution as early as July and further increases from now until next year if the Fed is forced to react faster than it had expected, however – particularly if wage growth resumes in the US in the next two coming months. The markets, and in particular the currency ones, are definitely not ready to cope with these developments.

The emerging markets will be those most affected, and a further deterioration of their situation could be seen. This might result in a high debt situation, estimated at the equivalent of USD 6000 billion, subscribed during cheap dollar times and seemingly inexhaustible cash during the Federal Reserve’s years of quantitative easing between 2009 and 2014. Elsewhere, the strong dollar will continue to crush the basic price and currency-dependent commodities – from Australia to Canada, via Norway.

Among the major currencies, the expected increase in the US interest rate may put pressure on the Japanese yen and weaken it, while causing concern among Japanese policymakers and with the yen at its lowest level against the US dollar since 2002. However, in a world in which US rates raise increased expectations, the yen will have no choice but to decrease while the Bank of Japan will continue to conduct its experiment of the most radical monetary policy ever known.

Ultimately, the summer looks likely to be hot.

(Additional source: Le Temps)



Published on Friday, 12th June, 2015 at 16:32 under the news category, by Marit Fosse.

This post has the following tags: forex, currency, money, markets.





  
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