For the last couple of months Central banks have been on the front phase of economic announcements and news globally. With a few “innovative” tools they always manage to become the main drivers of volatility in the financial markets including the Forex market. 2015 has specifically started off with the most dense central bank surprise interventions. In January alone we had the Swiss, Singapore, Japanese, European, Canadian and other relatively small central banks intervening the market.
For the last week, on January 27th the value of the Singapore Dollar dropped by the greatest amount in a single day since 2010. The Singapore Dollar plunge happened due to the decision taken by Monetary Authority of Singapore (MAS). Plunging energy prices, sideway national economic developments and rather strong Singapore dollar prompted Monetary Authority of Singapore (MAS) to loosen its monetary policy just days after the Swiss National Bank scrapped the 1.20 EURCHF floor knocking off brokers, traders, hedge funds and banks. On Wednesday, Singapore central bank announced they were reducing the pace at which it will allow the Singaporean dollar to appreciate.
The closing day of the week had specifically high importance for the US dollar, as the 2014 Q4 GDP figures were to be announced, already with lower QoQ expectations at 3.0% from 5.0% from the previous quarter. However, the results came below expectations at 2.6%, putting the USD relatively under pressure. This announcement had a specific importance for the FED as they are also expected to put their fingers into the US economy by revealing rate hikes in 2015, potentially in April.
From what it seems February is not going to be less volatile than January. There are two more central bank announcements scheduled for the first week of February which investors must be prepared for. These are the Reserve Bank of Australia Rate Statement on Monday and the Bank of England MPC Rate Statement on Thursday.
The important point to mention is that, it no more the interventions creating volatility but the words, quote changes or the tone of the language used scaring off the investors which creates volatility. The Reserve Bank of New Zealand for this point could be added to the watch list as the RBNZ Governor Wheeler is scheduled to speak on Tuesday, where investors await to see a language change in the speech.
The week will be finalized with the US Non-farm Payrolls Report on Friday. Given the state of the recent global economic developments and slower than expected Q4 GDP QoQ growth, investors and traders as well as the FED will be following this announcement carefully. If the NFP figure disappoints the market, we could see USD losing ground against its counterparts, as well as the FED changing their language tone in their following statement.
Nevertheless, markets will be open for surprise during the upcoming week due to the economical and political developments from Greece as the recently elected Syriza party is moving with their anti austerity plans faster than EU leaders expected. As per weekend announcements, Syriza is spreading their messages to other troubled EU countries such as Spain and Italy. If Europe does not take clear action against Syriza we could see Spain’s Podemos becoming the next Syriza but with bigger trouble towards stability of the union.
Let the war of central banks rule the markets for now. But do keep in mind that, with every crisis comes an opportunity.
By Yury Safronau at Orbex