Site icon Aximdaily

Weekly Market Recap: Fed Stepped into Tapering, BoE and RBA to Follow

Weekly Market Outlook

Weekly Market Recap

An interesting trading week with major central banks decide their policy paths for the coming year. The Federal Reserve announced scaling back its massive pandemic stimulus by $15 billion, signaling similar moves if needed. The Reserve Bank of Australia scrapped its yield target as the economy progress faster than expected towards the inflation target. Meanwhile, the Bank of England is heading to its first rate hike since the pandemic started to tame price pressures.

Fed Begin Tapering Asset Purchases

The Federal Reserve announced Wednesday it will begin tapering the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities from the current $120 billion a month, starting later this month.

The decision matched market expectation following a series of Fed signals that massive stimulus is no longer needed.  

The statement stressed that Fed’s policy is not on a present course, and the bank will act if necessary.

“The Committee judges that similar reductions in the pace of pandemic stimulus will likely be appropriate each month, but are prepared to adjust the pace of purchases if warranted by changes in the economic outlook.” The board commented.

The Committee noted that inflation is elevated and supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Still, the fed expects price pressures to be transitory despite the board’s acknowledgement that inflationary pressures are persistent but seems they are not persistent enough to drop off the “transitory” word yet.

The Fed Chairman, Jerome Powell, stated in the press conference that the bank can be patient on rate hikes but will not hesitate to act if inflation remains elevated.

RBA Abandons Yield Curve Control

The Reserve Bank of Australia discontinued the 0.1% yield target on April 2024 government bond during its November meeting. The board also dismissed its prior statement that rates were unlikely to rise until 2024. These actions reflected the bank’s shift to a hawkish stance, fueling expectations for a sooner rate hike.

The central bank kept the cash rate on hold at a record low of 0.1% for the 12th month in a row, and maintained buying government bonds at its current weekly pace of A$4 billion until at least mid-February 2022.

The RBA noted the decision to terminate the yield target reflects the economic improvement and the earlier-than-expected progress over the inflation target.

“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.” policymakers announced. “The board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 21/2% at the end of 2023 and for only a gradual increase in wages growth.” the statement added.

The RBA Governor Philip Lowe said the latest data and forecasts did not warrant a rate rise in 2022.

BoE Signals an Incoming Rate Hike

The Bank of England held interest rates steady at its historic low of 0.1% on Thursday by a majority of 7-2, and voted by a majority of 6-3 to keep its bond-buying programme unchanged at £875 billion. The central bank signaled it will raise interest rates in the coming months responding to high inflation. Market participants were already pricing in a rate hike before the end of the year, now it’s almost certain that the bank will raise interest rates during its next meeting in December.

The Pound fell sharply following the announcement, enduring daily loses of more than 1.3% against the greenback, and almost 0.80% against the euro.

The BoE’s committee stated that “it will be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target.” while judging that “there are two-sided risks around developments in the economy in the medium term, and will reach its assessment on the balance of these risks in light of the relevant data as they emerge.”

BoE governor Andrew Bailey said in a press conference the decision had been a close call considering the current economic situation, but the committee decided to take more time assessing the situation.

The Voting reveals that policymakers were split on the decision as two members, Dave Ramsden and Michael Saunders, voted to raise rates this meeting to 0.25%.

Rates have been held at their record low since march 2020 in response to the coronavirus pandemic.

The Bank of England published its quarterly Monetary Policy Report with the updated economic forecasts. The Bank now expects inflation to peak at around 5% in April 2022 before falling back toward its 2% target by late 2023, as the upward pressure on CPI inflation is expected to dissipate over time, as supply disruption eases, global demand rebalances, and energy prices stop rising. Inflation is expected to stay above the 2% target during the next two years and just below the target at the end of the forecast period.


Trade the News with AximTrade

Start Trading Today! Discover the best trading conditions with AximTrade, a global leading broker with top competitive leverage. Choose now from various forex account types, based on your trading strategy, experience, and capital designed for investment.

AximTrade is a multi-asset broker and financial service provider in the financial markets with a set of advanced technologies and highly efficient trading platforms. To enable traders to expand their abilities and opportunities, Copy Trade empowered the copying mechanism with the latest technology and easy-to-use user experience.

AximTrade is dedicated to enable forex traders with powerful trading technology, educational resources, technical analysis, ongoing promotions, and a highly competitive trading environment with the best trading conditions. Learn how to open forex account with easy few steps and join the markets now!

Exit mobile version