Currencies appear to be stabilizing on Thursday as markets ponder policy direction in the face of a series of central bank decisions. The Bank of Canada ended its QE program on Wednesday and joined the Reserve Bank of New Zealand in normalizing monetary policy.
Meanwhile, the Bank of Japan kept policy unchanged but signaled a dovish stance by lowering its inflation and economic growth forecasts, while the Reserve Bank of Australia refused to defend its target in the bond market as markets aggressively bet on an early tightening. Investors now seem to be looking ahead to the European Central Bank decision and the Federal Reserve meeting next week, as well as US GDP and employment data to be released later today.
Is the slowdown in the U.S. getting worse?
The U.S. economy likely expanded by 2.7 percent quarter-over-quarter in Q3 2021, which would be the slowest pace since the record 31.2 percent GDP contraction in Q2 2020, although a separate tracker from the Atlanta Fed suggests growth could be even lower at 0.2 percent. The spread of the delta coronavirus, global supply constraints, material and labor shortages, and soaring prices have likely taken a toll on both production and consumption.
Household spending has been hampered due to automobiles and travel, inventories are weak due to commodity shortages, exports have fallen, and residential fixed investment may also have contributed to the decline in growth in the face of low inventories and record price spikes. Still, the slowdown is expected to be short-lived, with U.S. GDP likely to accelerate in the fourth quarter and into next year. The Fed, based on its macroeconomic projections, projects GDP growth of 5.9 percent in 2021 and 3.8 percent in 2022.
Falling oil could help with decisions?
WTI crude oil futures appear to have fallen 2 percent and are below $81 a barrel before noon, down more than 5 percent in total from the high of $85.41 reached on Monday. Contributing to the correction in the oil market may have been EIA data that showed crude inventories rose by 4.3 million barrels last week, more than the 1.9 million barrels expected. However, the report also showed that crude oil inventories at a supply center in Cushing, Oklahoma, fell the most since January. Meanwhile, oil prices may have come under pressure following reports that Iran has agreed to resume broader talks with Western countries on its nuclear program, fueling speculation about Iranian oil returning to markets.
If the rise in oil prices were halted, there would be a greater chance that inflation, of which rising energy prices currently seem to be the main component, would also stabilize.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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