This was a successful week for the markets, with global stocks rising. These gains happened following the Federal Reserve interest rates decision on Wednesday. This article will look at the biggest stories of the week and what they mean for traders.
The Federal Reserve released its interest rates decision on Wednesday. As expected, the central bank left interest rates unchanged at the current range of 2.25% and 2.50%. The Fed also committed to intervene, in case the economy continued weakening. Investors interpreted this as a sign that the Fed will lower rates. This rate cut has been priced-in for either August or September meeting. It will be the first rate cut in almost a decade. In response to the Fed statement, stocks rose, dollar weakened, and gold soared.
Bank of Japan
The Fed decision was followed up by another one in Japan. The bank left rates unchanged at the minus 0.10% level as expected. The bank also committed to continue with measures to support the economy such as quantitative easing and lower rates. It also warned that the current global tensions were likely to continue posing significant challenges to the world economy and Japanese exports in particular.
Bank of England
Bank of England was the next central bank to deliver its decision. As was expected, the bank left interest rates unchanged at the 0.75% level. However, unlike other central banks, the bank did not sound dovish. Instead, the officials said that there was a possibility to raise interest rates if the UK had a smooth Brexit. The likelihood of a smooth Brexit is narrow, especially with the Eurosceptic Boris Johnson having the upper hand to replace Theresa may. Boris has no problem with a no-deal Brexit.
Less covered this week was the fact that the world was slowly turning to a currency war. This happened after a statement by Mario Draghi was captured by Donald Trump. In a statement, the ECB president said that the central bank will consider doing whatever it takes to improve the economy. This means that it had tools like more rate cuts and increased quantitative easing (QE), which means that the bank will continue with asset purchases. Donald Trump immediately responded and said that the statement was unfair to the US. This is because a weaker euro would make European goods cheaper. This came out in a week where Donald Trump hinted that he could replace Jerome Powell as the Fed chair. While he cannot fire him outright, White House lawyers believe that he could demote him to be a Fed governor and replace him with a more dovish person.
In the Persian Gulf, tensions continued to rise after Iran downed an American drone that was in its airspace. This increased the tensions in the region. Trump responded by saying that Iran had done a serious mistake. According to the NYT, the president also authorized targeted attacks on Iran and backed-off. At the time, planes were in the air and war ships were in place to carry out the attacks.