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February 25th - A senior finance official in Zambia, Africas second-largest copper producer, stated that the country will utilize higher-than-expected mining revenues to launch a stabilization fund this year to ensure the government has a buffer in case the copper price surge subsides. Zambian Finance Minister Felix Nkulukusa called this mechanism an "emergency fund," and the government will complete the framework for the fund this year, after which surplus funds can be deposited. He stated that this will allow Zambia to smoothly complete its budget preparation when facing challenges in pricing and budgets. Previously, with soaring global copper demand and increased domestic copper production, Zambias economy experienced a strong recovery, its currency performed best against the US dollar globally, foreign investors flocked to its government bond market, and its stock market index ranked among the top four globally in terms of gains over the past 12 months.On February 25th, former Bank of Japan Governor Haruhiko Kuroda stated that given the already strong economic situation, it is necessary to continue raising interest rates and tightening fiscal policy. He warned that Prime Minister Sanae Takaichis massive spending plan could trigger overheated inflation. Kuroda is known for his aggressive monetary stimulus policy launched in 2013, a key component of former Prime Minister Shinzo Abes "Abenomics" reflation strategy. He stated that with robust economic growth and steady wage increases, the Bank of Japan may raise interest rates approximately twice a year in 2026 and 2027. "Today, Japan faces inflation and a depreciating yen. Japan needs to shift to tighter fiscal and monetary policies. The Bank of Japan must gradually raise interest rates to a neutral level. Fiscal policy must also be tightened. I have doubts about whether increasing spending and tax cuts are appropriate." Kuroda warned that expansionary fiscal policy could backfire, exacerbating inflationary pressures and pushing up bond yields.The China Earthquake Networks Center officially reported that a magnitude 3.6 earthquake occurred at 14:00 on February 25 in Yingjiang County, Dehong Prefecture, Yunnan Province (24.72 degrees north latitude, 97.73 degrees east longitude), with a focal depth of 10 kilometers.The China Earthquake Networks Center automatically determined that an earthquake of approximately magnitude 4.0 occurred at 14:00 on February 25 near Yingjiang County, Dehong Prefecture, Yunnan Province (24.61 degrees north latitude, 97.81 degrees east longitude). The final result is subject to the official rapid report.Former Bank of Japan Governor Haruhiko Kuroda: Japans economy is in good shape, and it needs to tighten fiscal and monetary policies.

GBP/USD falls to around 1.2370 as the BoE considers taking swift action ahead of UK inflation and US purchasing managers' indices

Alina Haynes

Apr 17, 2023 13:53

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On Monday morning, the GBP/USD currency pair retested an intraday low of 1.2390 after extending Sunday's decline from a 10-month high. To provoke adverse after breaking a four-week uptrend, the Cable pair explains the most recent concerns emanating from the United Kingdom (UK) and the optimism surrounding the Federal Reserve (Fed).

 

According to the Financial Times (FT), "The Bank of England is considering a major overhaul of its deposit guarantee scheme, including increasing the amount covered for businesses and compelling banks to pre-fund the system to a greater extent to ensure faster access to cash when a lender collapses."  The revelation fuels banking concerns in the United Kingdom and places pressure on the Cable duo.

 

UK Chancellor Jeremy Hunt's concerns about US subsidies may also be exerting downward pressure on the GBP/USD exchange rate as British firms rush to claim benefits before leaving the country. According to the news, "Chancellor Jeremy Hunt warned Sky News that Britain should be wary of any new subsidies, warning that they could undermine the economy and possibly even spark a protectionist trade war."

 

A larger-than-expected decline in US retail sales was unable to offset positive data from US industrial production and the University of Michigan's (UoM) consumer confidence index from the previous day. Despite this, US retail sales decreased by 1.0% in March compared to the predicted -0.4% decline and February's -0.2% decline. As opposed to the 0.2% market consensus and previous reading, Industrial Production increased by 0.4% in the month in question. The preliminary result of the University of Michigan's (UoM) Consumer Confidence Index for April, which increased to 63.5 from 62.0 analysts' expectations and previous readings, was also encouraging. In addition, inflation forecasts for the next year increased from 3.6% in March to 4.6% in April, while inflation forecasts for the next five years decreased by 2.9% during the same month.

 

Notably, Fed officials have recently appeared more hawkish than their BoE counterparts, which has exerted additional pressure on the GBP/USD exchange rate.

 

In this environment, the S&P 500 Futures exhibit modest gains following Wall Street's pessimistic close, while bond yields remain unchanged following weekly increases.

 

Moving forward, the current week is crucial for GBP/USD speculators as it contains a variety of high-quality inflation, employment, and UK PMI data. These data may be used to support the Bank of England's (BoE) officials' waning hawkish inclination and may keep bears in play. However, the US PMIs and Fed discussions should not be disregarded when looking for clear guidelines.

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