Over the next 24 hours, we are looking forward to announcements from 3 central banks. The first will be the Central Bank of the Republic of Turkey (CBRT) who is widely expected to raise interest rates by a few hundred basis points. They are holding an emergency monetary policy meeting today and their announcement is expected at 5pm ET or 10pm London. The goal of the CBRT is to restore confidence and demand for their currency and the expectation for a strong rally in the Turkish Lira against the EUR is the main reason why is the euro is lagging behind other major currencies this morning.
After the CBRT meeting comes Federal Reserve Chairman Ben Bernanke’s final monetary policy meeting. The Federal Reserve is widely expected to reduce asset purchases by another $10 billion. Although non-farm payrolls growth slowed to 74k from 241k in December, the following table shows improvement as well as deterioration since the last FOMC meeting. In the labor market alone, the unemployment rate dropped to closer to the central bank’s 6.5% threshold and even though advance retail sales growth slowed, core retail sales accelerated to 0.7% fro 0.2%. Consumer confidence has been mixed, manufacturing and service sector activity slowed but inflation is stabilizing and ticking higher on an annualized basis. Overall the US economy continues to improve and the decision to begin tapering last month was carefully calculated. Therefore the Fed is expected to overlook last month’s softer economic reports and forge forward with reducing asset purchases. However don’t expect Wednesday’s FOMC announcement to be unambiguously positive for the dollar because the central bank will also stress that monetary policy will remain extremely easy.
How the US Economy Changed Since December FOMC Meeting
Shortly after the Federal Reserve meeting, the Reserve Bank of New Zealand will deliver its own monetary policy announcement. While the RBNZ is not expected to change interest rates, they will be preparing the markets for a rate hike in very near future. As shown in the table below, there have been more improvements than deterioration in New Zealand’s economy since the last RBNZ meeting. Inflation is on the rise, along with manufacturing activity, business confidence and housing. The drop in consumer confidence, job advertisements and service sector activity has been nominal. We expect the New Zealand dollar to hold onto its gains ahead of the RBNZ announcement.
How the New Zealand Economy Changed Since December RBNZ Meeting