What dates and events will have most impact on the currency markets for the remainder of 2013?
Monthly U.S. NFP reports, Japanese inflation and Consumer Price Index updates, and European bond sales will continue to affect the currency markets for the balance of the year.
June and July’s NFP reports support the improving fundamentals in the world’s largest economy. Higher domestic yields have primarily favoured the U.S. dollar. The FOMC July minutes scheduled for release this week is expected to hold the market’s attention, as investors remain sensitive and vulnerable to central bank rhetoric and the possibility of Fed “tapering” beginning as early as next month.
On the subject of the Fed, President Barack Obama is expected to pick Bernanke’s successor within the next few months. While many think economist Larry Summers is the frontrunner, there are no guarantees the president will appoint the former Director of the National Economic Council. Regardless, once Bernanke’s successor is named, anticipate a market impact.
Beyond America, federal elections in Australia and Germany in September will also be felt, as will any potential changes to Japanese Government Bond rates.
What are the top three currencies to watch?
The biggest currencies by volume have not escaped the volatility of this year’s uncertainty. The USD, EUR, and JPY will keep market observers digging for insight as the Fed, the ECB, and the BoJ remain in the spotlight. These central banks’ stances have been criticized by the Bank of International Settlements, which warned about bold approaches to monetary policy. Not to be overlooked, keep an eye on the AUD and the GBP. China is Australia’s largest trading partner and the BoE’s new “rock star” governor should stir the pot at the Old Lady.
What three key macroeconomic themes will dominate the news agenda? Will a TPP agreement be reached? Will the German economy pick up in 2013?
The three macroeconomic themes to keep in mind include Abenomics and its influence on the U.S. dollar’s positioning, German Chancellor Angela Merkel’s bid for re-election in September with her center-right coalition government, and whether or not the American economic recovery is indeed real or if it’s but another “blip”.
In general, central bank intervention and its positive and/or negative consequences, continuing social and political unrest as more people oppose austerity measures worldwide, and a lack of a clear investment path for anyone to seek shelter from the raging economic storm.
Given the low profile that the Trans-Pacific Partnership (TPP) has enjoyed to date, great progress has been made. But the difficult part has yet to be broached: local governments get to vote and discuss the benefits and challenges of such a large and ambitious trade agreement. There are protests expected that could change how the public and elected politicians view the proposed pact. This year will not be a make or break one for the TPP; the impact will not be felt for some time. However, it will be telling in terms of how it will fare in 2014 as more people in the countries involved become aware of its significance.
With respect to the German economy in the second half of 2013, a dramatic improvement is unlikely as eurozone unemployment figures remain high. In a matter of weeks Germany will be going to the polls in the “most important election of the year”(Sept 18th). What’s rather extraordinary is virtually no debate about the major problems facing the country – exiting nuclear energy, ageing population concerns, or a debate on the euro-zone. Political pundits believe that Chancellor Merkel has pushed her party, the Christian Democrats (CDU) so close to her opposition, the Social Democrats (SPD) and Greens that the voting electorate will find them virtually “indistinguishable.”
Moreover, France under socialist President François Hollande could become more of a contentious issue for Germany – the eurozone’s strongest economy. Financial, social, and political instability continues to grow in Greece, Spain, Italy, and France. Though Germany remains the eurozone’s economic backbone, contagion fears persist that the fiscal woe that’s hurting other eurozone members could derail the pace of recovery in Germany.