Morning Commentary: Mixed Messaging

Foreign Exchange - Morning Commentary

Mixed Messaging

Share this story:
Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Part of the job of central bankers is to strike the proper balance between growth and inflation and to keep their respective economies on an even keel tweaking policy as necessary to prevent excesses. Another key part of the modern day central banker pertains to messaging and to be consistent and clear regarding the course of future monetary policy and to not go out of their way to frustrate investors and traders that can result in roiling the markets.
Yesterday’s FOMC announcement at 11:00 and the language that followed led the market along the path of the narrative that there was a concern on the Fed’s part about continuing disappointing inflation data. Interest rates moved lower and the U.S. dollar weakened.
But a mere 30 minutes later, the market had to sharply reverse course as Fed Chairman Powell described recent inflationary weakness as “transient”. U.S. interest rates reversed course abruptly and the U.S. dollar regained its footing. U.S. 2-year yields had an unprecedented whipsaw of moving from 2.26% to 2.20% and then all the way back up to enormous intraday move.
Markets are now recalibrating the likelihood the probability of Fed lowering interest rates down the road. For today, U.S. interest rates are still reacting to the Fed Chairman’s pivot once again and are still rising and the U.S. dollar is outperforming.
  • The Bank of England left monetary policy unchanged at 0.75% as was expected and the vote for unchanged interest rates was unanimous at 9-0. The Bank of England had some mixed messaging for the market by signaling that more than one rate hike may be necessary as they raised their growth forecast for 2019 and 2020 but cut its inflation forecasts for 2019 and 2020. The British pound has whipped around on the headlines but is near unchanged from last night.
  • More good news for the U.S. economy as Q1 nonfarm productivity widely beat expectations rising by 3.6%. This is the fastest pace of productivity since 2014. This is welcome news as productivity gains only averaged 1.3% from 2007 to 2018.
If we can help you with any Foreign Exchange needs, please email or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to Please do not reply to this email. To ensure the delivery of future emails, please add to your email address book or safe sender list.
Copyright ©2019 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC


Popular posts from this blog