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NBC Daily Forex: June 10, 2013

ByThe National Bank of Canada
Published 06/10/2013, 08:22 AM
Updated 05/14/2017, 06:45 AM

Chinese Inflation and Industrial Production figures for May were announced Monday night, and proved slightly disappointing. In contrast, Japan saw a leap of 4.1% in its annualized GDP for the first quarter of the year. The Bank of Japan's strategy of printing money appears to be hitting the mark. Very early Tuesday, BoJ Governor Haruhiko Kuroda will announce his key rate decision, which could trigger volatility.

Closer to home, Fed officials are pondering a gradual pullback from quantitative easing measures. Many have denounced the program as disrupting markets, and certain indicators seem to bear this out. By purchasing massive quantities of securities, the Fed has driven yields to rock-bottom levels, driving away other buyers. Last week, the repo rate at which banks borrow dipped into negative territory (which had also occurred in the thick of the financial crisis). Essentially, this means that private money market funds must pay interest to banks to lend them money. Needless to say, an excellent reason to invest elsewhere. These distortions are proving troublesome to markets, and may be depriving the economy of precious capital. Should a pullback from quantitative easing measures begin, the greenback would likely take off, making this an area that bears watching closely.

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