Will ECB initiate QE again?

The next ECB meet is to be held on September and that would be the last meeting for Mr. Mario Draghi, the present ECB president whose term is coming to an end in this October. In the earlier meet which was held on July 25, Mr. Draghi hinted for a stimulus package to be introduced again in the next meet. The factors for QE are:

Manufacturing and Inflation:

Mr. Draghi is totally frustrated with the manufacturing output. It’s declined in July from 45 to 43.1. It indicates that the economy is nearing to recession.  The reason for fall in manufacturing data is because of China as they are the largest importers for automobiles from Europe. The new orders also tumbled down to 2012 levels. The services and construction output in Eurozone is also falling down. The inflation rate is still below 2%, it is stable between 1.2 to 1.3%. To boost up the inflation to reach 2% annually and to improve manufacturing ECB has to initiate the stimulus package again.

What are the key factors to decide central bank rate?

 

Global factors:

The global factors like trade war and the Brexit in which the Britain will move out of European Union without an agreement and the global economy is slowing down as global central banks looking for rate cuts including U.S. This makes the ECB to think for stimulus package.

What affects the global market?

Bonds:

The German 30 year bond yield was down to a record low of 0.167%. The 10 year bond also fell down below  -0.4%. This is because of the deposit rate of commercial banks to central bank is -0.4% and their cash borrowing rate from central bank is zero. Draghi is will to purchase bonds as stimulus package but some of the members are opposing for bonds. German politicians, industrial chiefs has moved to court against ECB for fresh bond purchase. They say that the ECB’s move of bond purchase is illegal. Earlier in 2015, when ECB introduced the Outright Monetary Transactions the German politicians and industrial chiefs also challenged the ECB in court but it was ruled out by judges and favored the ECB.

How bond markets plays a vital role in economy?

So, ECB’s chances of re-introducing the QE in the next meeting is highly visible.

What happens if Fed cuts interest rate by 50bps?

The Fed meet is to be held on 31st July 2019. Most of the experts expecting for 25bps rate cut but some more analysts expecting a rate cut for 50bps. Now what will happen if Fed cuts the interest rate by 50bps? Here we see:

Inflation:

The Fed members are very much worried about the inflation rate which is much below the expected target of 2%.  So no need of rate cut and if there is a higher rate cut then the inflation will grow higher which the Fed doesn’t want to happen.

What are the key factors influencing Forex Markets?

 

 

Bond Markets:

The long term bond yields are not satisfactory for the investors as the short term bond yields gives better returns than long term yields. The investors are not in a mood to pay higher premium for long term yields. This also makes the investors that a rate cut will occur.

How bond market related to economy?

Employment rate:

The employment rate had a growth and is much more than expected by the analysts. It is not a worry even if the Fed is announcing 50bps point cut.

How Non-Farm payroll plays an important role for the economy?

Economy:

The economy is strong for U.S when comparing to other countries. If the Fed has a bigger rate cut a threat for financial market bubble may be visible. Moreover the debt will increase and move for a beginning of recession phase.

Why monetary policy important for a country?

Which are the weakest currencies in the world?

Currency means a system of money in used for common purpose in a country. It’s a medium for exchange of goods and services. A currency becomes weak when the country’s economy slows down. This occurs due to inflation, falling prices of commodities, monetary tightening and political instability. Here is the list of weakest currency around the world against dollar:

 

 

Iranian Rial(IRR):

Iranian rial is the least valued currency against dollar.

1USD = 42,105 IRR

The currency has lost four times of the real value in almost 15 months due to withdrawal of nuclear agreement and imposing of sanctions again. Its financial structure and corruption pulls down the currency to weaker zone.

 

Vietnamese Dong(VND):

Vietnamese Dong is the second weakest currency against dollar.

1USD = 23,208 VND

The country’s currency is undervalued subsequently till date. The Vietnam government is pushing hard to value their currency in to global market. The government is moving in a right direction to compete their currency along with their neighbours and expecting to hit soon like other Asian currencies.

 

Indonesian Rupiah(IDR):

Indonesian Rupiah is the third undervalued currency against dollar.

1USD = 13,980 IDR  

Due to the low value of old-style banknotes, by presidential decree of September 5, 2016, 7 new banknotes were issued in denominations from 1 thousand to 100 thousand rupiahs.

Indonesia is an economically stable and quite developed country in Southeast Asia. However, its money has a very low exchange rate. The financial regulatory authorities are trying their best to build their currency to a valuable currency but all their efforts end in failure.

 

Guinean Franc(GNF):     

Next Guinean franc adds the list by number four weakest currency versus dollar

1USD = 9,183 GNF

This currency became weak due to the biggest concern of inflation and poverty. The people who are living in the country considers their currency as a precious gift like gold, diamond.

 

Laotian Kip(LAK):    

Further added in the list is Laotian Kip which secures the fifth place.

1USD = 8759 LAK

The Lao is the only currency on this list which did not devalue but was originally issued with very low rate. Besides, since its issue in 1952, the currency did strengthen against US Dollar and continues to improve its value.

 

Sierra Leonean Leon(SLL):

Sierra Leonean Leon ranks sixth worst valued currency against dollar.

1USD = 9,125 SLL

Sierra Leone is a very poor African country, which applied many strategies to value the local money but ended in vain. Recently, a war took place and the periodic deadly Ebola virus.

 

Uzbekistan Sum(UZS):

Here comes Uzbekistan Sum entering seventh place for poor currency against dollar.

1USD = 8,620 UZS

The modern Sum was put into circulation with a ratio of 1 Sum equal to 1000 Sum-coupons from July 1, 1994 by Decree of the President of Uzbekistan.

As a result of the liberalization of their monetary policy from September 5, 2017, the exchange rate of the Sum against the US dollar is set at 1 USD = 8,100 UZS

 

Paraguayan Guarani(PYG):

This currency settles at eighth place in the race of weakest currency versus dollar.

1USD = 6,012 PYG

Paraguay is the second poorest country in South America. The country faces weak economy with high inflation, having low literacy rate and high unemployment and corruption plays a major role to obstruct the currency growth.

 

Cambodian Riel(KHR):

Cambodian Riel ensures ninth place in the least currency countered with dollar.

1USD = 4,083 KHR

This currency was amended in 1995 to replace Indochinese Piaster. But the monetary value was not a hit in their country because the people preferred dollar for their transactions. This made the currency weaker.

 

Ugandan Shilling(UGX):

The Ugandan Shilling captures the title for poor currency at number ten towards dollar.

1USD = 3694 UGX

In 1966, the Uganda Shilling first appeared, replacing the East African Shilling. The latter was the official means of payment in Kenya, Uganda, Tanganyika and Zanzibar.

The Uganda Shilling is a relatively stable currency. Over the past few years, its value hasn’t lost more than 5%.

Will gold peak $2000?

The gold prices are strong gradually increasing on global factors like Brexit deal, Trade War, Middle East tensions and World Economic growth.  The following factors will influence the gold to touch $2000:

Demand:

The World Gold Council’s 2019 figures show that total demand was increased by 7% YoY.

Central Banks bought 145.5 tonnes, which is up 68% YoY. The reason in increased demand for gold is for diversification and for safe, liquid assets.

ETFs added 40.3 tonnes with an increase of 49% YoY. But gold coin and bar investment fell by 1% and appliances usage of gold fell by 3%. Indian jewellery demand boosted up 5%.

Why gold prices are shooting up?

 

Stock Markets:

Investors stopped investing in Stock markets and diversified to gold. Trump is also one of the reason for diversification. He sacked FBI director Comey, the stock market fell nearly 0.85% at the same time gold increased by 1%.

How to trade in markets? What to be followed?

Global Factors:

The trade war is a key factor for increasing the demand for gold. After Trump and Xi had not met a deal for tariffs the gold have fallen down. But still the negotiations are going on. Iran’s drone has been shot by U.S recently. This also spurred the gold market. The uncertainty in Brexit deal also makes the investors to turn towards gold. Overall, the global economy is in bad shape inclusive of U.S. The raising inflation is the biggest worry for U.S and so expecting a Fed interest rate cut in July 2019. If fed cuts interest rate the gold will raise up.

What happens to gold on trade war?