FX Commentary - December 18, 2017
The Federal Reserve held its final meeting of the year last Wednesday which was also the last of Chairwoman Janet Yellen’s lengthy career with the central bank. As expected, the Fed raised benchmark rates by 25bp in a 7-2 vote. The bank also raised its growth forecasts for 2018 and maintained projections for three further rate increases next year, making few changes to its outlook ahead of the transition to incoming chair Jerome Powell. Of concern to markets however were the Fed’s inflation expectations which were mostly unchanged. Commenting on the subject during the following press conference Yellen reiterated that the Fed’s “understanding of forces driving inflation is imperfect” though she still believed those factors would likely still prove “transitory”. The lack of any definitive resolve on inflation going forward left markets dissatisfied, driving the dollar to one week lows as measured by the dollar index.
Moving onward, the main driver for the dollar for the remainder of the year will likely be the progress of tax reforms. Last Wednesday, House and Senate Republicans agreed to several key details of the bill and on Friday, holdout Senator, Marco Rubio agreed to a compromise on the bill although a handful of other GOP senators remain undecided. Adding to the pressure on the GOP was last week’s surprise senate victory of Democrat Doug Jones in Alabama which will reduce the GOP’s senate majority to a razor thin 51-49 next year. With time running out this week’s vote should prove a make or break moment for the fate of the tax reforms. As a result, although next week’s data docket sees important releases expect to see volatility coming off tax developments.
Overseas the UK played host to its own political drama courtesy of ongoing Brexit developments. Despite a week which saw the Bank of England’s final meeting of the year and crucial releases on inflation, wages, and consumption in the end it was none other than political headlines which proved just how betrothed the pound is to Brexit. Despite the finding gains on the back of solid wage and consumption data early in the week nonetheless on Friday the pound relinquished all of its gains in part due to reports from Brussels suggesting that discussions may not formally begin until March of next year. Any delays would further complicate the agenda for Prime Minister Theresa May who is just coming off a damaging parliamentary defeat which gives parliament a vote on the final Brexit deal. This week final third quarter growth is released along with statistics on public borrowing. Even if the data proves positive the drama following Brexit and Theresa May could still keep the pound in check.The European Central Bank kept its rates and asset purchases steady last Thursday, offering no change in guidance following its announcement in October that it would begin reducing stimulus next year. The ECB revealed updated economic forecasts which showed higher growth over the next 3 years with inflation averaging 1.7% by 2020. ECB President, Mario Draghi, noted that the Governing Council’s discussion “reflected the increasing confidence that we have in the convergence of inflation towards a self-sustained path…”. Draghi’s select choice of words may reflect a change in sentiment regarding the bank’s approach to its mandate. The ECB may be beginning to realize that much like the Fed they may have to end QE before their inflationary targets are firmly attained. By emphasizing the “convergence” of inflationary pressures rather than any discrete target, Draghi may be taking the first subtle step towards making a further change in language next year. Until then expect to see the euro taking its cues from regional data as well as US dollar flows.
An empty economic calendar last week left the Canadian dollar prone to any unexpected shocks. Bank of Canada Governor, Stephen Poloz delivered a shock when he gave surprisingly hawkish comments during a television interview last Thursday. Sounding generally upbeat while delivering comments on the economy, Poloz stated, “We want the economy to run hotter for a while to use up excess capacity.” Poloz’s confident remarks seemed to open the door to a Q1 rate hike next year, giving a boost to the Canadian dollar before seeing it fade much of its gains. Markets may have subsequently reassessed how much value to place in Poloz’s words, who by his own admission does not like to offer up forward guidance. Big Canadian data this week in the form of retail sales, CPI, and GDP should offer markets something more tangible to digest. All three measures, most notably growth, have moderated recently, and the degree to which they should continue moderating or show resiliency will be central to gauging the likelihood of an early rate hike next year.
Asia-pacific currencies finished the week the strongest, against the US dollar, with the Australian dollar notching one month highs and the Yen recovering off one month lows to flirt with the 112 level. The Australian economy added a year-to-date best 61,600 jobs in November, with 41,900 full-time jobs comprising of that amount and the participation rate increasing to 65.5%. Meanwhile, the Japanese yen found itself the primary beneficiary of the uncertainty surrounding the tax bill. The Bank of Japan’s Tankan survey last Thursday also showed big Japanese manufacturers’ business confidence at an 11 year high. Trade statistics will be released for the Japanese economy early next week while the Bank of Japan holds its final meeting of the year Wednesday.
Sources: Bloomberg, Wall Street Journal, Reuters, Barclays, Bank of America, Econoday, 4cast
Recent NewsBridge Bank's Business Escrow Services Group Launches New Paying Agent PlatformBridge Bank Extends $12,000,000 Credit Facility to EllevationAlex Tsarnas Joins Bridge Bank Team to Lead Its Newly Established Banking Group, Business Escrow ServicesBridge Bank Expands Capital Finance Group Adding Several New PositionsBridge Bank Extends $25,000,000 Credit Facility to Health-Ade
Recent InsightsAustin's VC Ecosystem Tops $2 Billion in Value for Third Year RunningNew York Sees Second-Highest Annual Exit Value at Nearly $37 BillionCytoSorbents Delivers Technology to Calm the StormMasterClass Streams Inspiration When It's Needed MostLeaving LIBOR: 4 things to know about changing interest rate benchmarks
Our #LifeSciences Group recently provided a term loan to Adarza Biosystems, developer of the ZIVA platform, a next-generation biomarker discovery and therapeutic research tool. pic.twitter.com/CR160SrQKbAustin’s VC ecosystem topped $2 billion in value for the third year running in 2020. Download our report, Markets to Watch: Austin, TX, to learn more and read the analysis. bit.ly/3sGCwly - 2 days #Austin #venturecapital pic.twitter.com/75Kk4auvZdJoin us for Markets to Watch: Austin, TX to discover how the Austin VC ecosystem still secured a record $2.3 billion in aggregate value thanks in no small part to the its resilient enterprise tech sector. RSVP by clicking the link: bit.ly/3rzsUaZ - 3 days pic.twitter.com/Ml7OkIKMS2Key top-level trends that defined VC deal-making in Austin last year can be found in our report, Markets to Watch: Austin, TX. The report also contains analysis of Austin’s banner year for exit value creation. Download it now: bit.ly/3sGCwly - 5 days pic.twitter.com/ZQzJ6GiCtwJoin us and PitchBook, along with special guest Silverton Partners to discover key top-level trends that have defined VC deal-making in Austin. RSVP by clicking this link bit.ly/3rzsUaZ - 7 days pic.twitter.com/M3ithiqhjjOn April 14, our panel of experts will provide analysis and key insights into Austin’s VC ecosystem, which topped $2 billion in value for the third year running. RSVP now to attend this informative event. bit.ly/3rzsUaZ - 1 week 2 days ago #Austin #venturecapital #technology #innovation pic.twitter.com/gzRc4qJELoAustin’s VC ecosystem topped $2 billion in value for the third year running in 2020. Download our report, Markets to Watch: Austin, TX, to learn more and read the analysis. bit.ly/3sGCwly - 2 weeks ago #Austin #venturecapital pic.twitter.com/ltpq7r20P8Join us for Markets to Watch: Austin, TX to discover how the Austin VC ecosystem still secured a record $2.3 billion in aggregate value thanks in no small part to the its resilient enterprise tech sector. RSVP by clicking the link: bit.ly/3rzsUaZ - 2 weeks 1 day ago pic.twitter.com/ztR0lKmyzEOur Technology Banking Group recently provided a venture debt facility and working capital line of credit to Step. To learn more, read their recent press release. step.com/press/step-sur… - about 1 month 1 week ago #bridgebank #step #fintech pic.twitter.com/MzAtQGOTu9We are pleased to announce that we have launched Bridge Bank Gateway, a new digital paying agent platform that simplifies and accelerates complex M&A transactions. Read our recent press release to learn more. westernalliancebancorporation.com/bridge-bank-ho… - about 1 month 1 week agoWe would like to welcome Alex Tsarnas to the Bridge Bank team. Alex will be leading our newly established banking group, Business Escrow Services. Read our press release to learn more. westernalliancebancorporation.com/bridge-bank-ho… - about 1 month 3 weeks ago #mergersacquistions #privateequity #bridgebankIn observance of Presidents' Day, all Bridge Bank offices will be closed on Monday, February 15. #PresidentsDay pic.twitter.com/6eMQQeNJipOur team of asset-based lending professionals is growing! Read more about it here: westernalliancebancorporation.com/bridge-bank-ho… - about 2 months 3 days ago #assetbasedlending #bridgebankOur Life Sciences Group recently provided a Term Loan to Bolder Surgical, a medical device company focused on commercializing mini-laparoscopic surgical devices aimed at improving and enabling laparoscopic procedures for pediatric patients. #lifesciences #medicaldevices pic.twitter.com/hKgRzmVhaZ“Not everybody can be famous but everybody can be great because greatness is determined by service… You only need a heart full of grace and a soul generated by love.” ~ Dr. Martin Luther King Jr. In observance of MLK Day, all Bridge Bank offices will be closed on Mon. 1/18. #MLK pic.twitter.com/rBAo4INJXBOur Technology Banking group recently provided a growth capital term loan to Funraise, a software company that provides a state-of-the-art fundraising platform, saving nonprofit organizations time and resources spent on data management. pic.twitter.com/StETyssfLeOur #Technology Banking group recently provided a credit facility to @DrinkHealthAde, an organic beverage company. To learn more details, read our press release. westernalliancebancorporation.com/bridge-bank-ho… - about 4 months 2 weeks ago pic.twitter.com/0eWWI16N08Our Technology Banking Group at Bridge Bank recently provided a credit facility to CloudBolt Software, an enterprise leader in cloud management and integration solutions. Visit westernalliancebancorporation.com/bridge-bank-ho… - about 4 months 3 weeks ago to learn more details. pic.twitter.com/8fzjGbAL6BWe honor all of the veterans who have served our country. Thank you. #HappyVeteransDay REMINDER: In observance of Veterans Day, all Bridge Bank offices will be closed on Wednesday, November 11. pic.twitter.com/IfoGP8ecCAWe would like to welcome Jon Berry to the Bridge Bank team! Jon supports our Technology Banking group and will be based in Austin. Read our press release to learn more. #technology #banking #Austin #Texas westernalliancebancorporation.com/bridge-bank-ho… - about 5 months 6 days agoIn observance of Columbus Day, all Bridge Bank offices will be closed on Monday, October 12. pic.twitter.com/BtX52D5RTPWe wish everyone a safe and relaxing #LaborDay holiday weekend. REMINDER: In observance of Labor Day, all Bridge Bank offices will be closed on Monday, September pic.twitter.com/09SIuoO7XGOur Technology Banking Group recently provided MIVA, an #ecommerce #software and service provider, with a credit facility. Read our press release to learn more: westernalliancebancorporation.com/bridge-bank-ho… - about 7 months 2 weeks ago #technologybanking pic.twitter.com/OUj49RdD5VOur Life Sciences Group is pleased to announce an upsized term loan for Fennec Pharmaceuticals, a pharmaceutical company focused on the development of PEDMARK™ (a unique formulation of Sodium Thiosulfate) for the prevention of ototoxicity from cisplatin in pediatric patients. pic.twitter.com/zrH2JslA27Stay safe as you celebrate #IndependenceDay. REMINDER: In observance of Independence Day, all Bridge Bank offices will be closed on Friday, July 3.” pic.twitter.com/EFLG0KJ3u5Our Technology Banking Group is pleased to announce that they have recently provided a credit facility to aPriori Technologies, a leading provider of design for manufacturability and cost (#DFM/DTC) solutions. #computersoftware #technology #banking pic.twitter.com/PuTYcnKMttLast chance to join us for what is sure to be one of the most interesting economic discussions in the history of this long-standing event, featuring economist, Dr. Christopher Thornberg & SJ Deputy City Manager, Kim Walesh Register now! #sjsueconsummit event.on24.com/wcc/r/2316585/… - about 10 months 3 weeks ago pic.twitter.com/sqxWOiCvsZThis Memorial Day, we honor and remember those who lost their lives while serving our country. REMINDER: In observance of Memorial Day, our offices will be closed on Monday, May 25. pic.twitter.com/Ae97NsXsDaThere’s still time to join us for what is sure to be one of the most interesting economic discussions in the history of this long-standing event, featuring keynote speaker and noted economist, Dr. Christopher Thornberg. Register today! #sjsueconsummit event.on24.com/wcc/r/2316585/… - about 10 months 4 weeks ago pic.twitter.com/TWo0MiGjijJoin us for what is sure to be one of the most interesting economic discussions in the history of this long-standing event, featuring keynote speaker and noted economist, Dr. Christopher Thornberg. Register today! #sjsueconsummit event.on24.com/wcc/r/2316585/… - about 11 months 1 day ago pic.twitter.com/pdtYAF2XrDBridge Bank’s #LifeSciences Group is proud to partner with iCAD, a global #medical #technology leader providing #innovative cancer detection and therapy solutions. bridgebank.com/lifesciences - about 11 months 1 week ago pic.twitter.com/oPIrnYlOTjCongratulations, @ArcturusRx on your big announcement and the accomplishments you and your team are achieving as you work on a vaccine for COVID-19. #COVID19 #coronavirus #vaccines #LifeSciences ir.arcturusrx.com/news-releases/… - about 1 year 1 day agoOur #LifeSciences team is proud to provide Valencell, a company that transforms the science of wearable #biometrics to enable impactful #health outcomes, with the creative #bankingsolutions they needed. pic.twitter.com/XCmNJpaVuvOrganizations of any size are at risk of data breaches or other types of #cybercrime, but you can defend yourself against #fraud by knowing the dangers and implementing best practices whether you’re #WFH or the office. #fraudawareness #cybersecurity westernalliancebancorporation.com/bridge-bank-ho… - about 1 year 1 week ago pic.twitter.com/bzKAaLYRGPLearn more about the several key initiatives we’re focused on right now. #WeAreInThisTogether #covid19 #CoronaVirus westernalliancebancorporation.com/~/media/pdfs/b… - about 1 year 1 week ago pic.twitter.com/ssOjI7DGnXCybercriminals are using concerns about COVID-19 to perpetrate scams – learn how to defend your organization against these scams and best practices to keep your business safe. #fraudawareness #cybersecurity #fraud #cybercrime #fraudprevention #WFH westernalliancebancorporation.com/bridge-bank-ho… - about 1 year 2 weeks ago pic.twitter.com/kZo07GPhVv