Binance coin to make a huge announcement on 14th July 2024. The U.S. Federal Reserve might go for a change rule which in turn would ease the U.S. Bank’s burden. Trump’s policies may weaken the dollar’s global dominance. All this and more is in this week’s issue of Fx Parkey’s newsletter.
Federal Reserve’s Shift | Easing Bank Capital Requirements
The U.S. Federal Reserve is contemplating a rule change that could result in substantial capital savings for the country’s eight largest banks. This potential adjustment involves recalculating an additional layer of capital known as the GSIB surcharge, introduced in 2015 to enhance the stability of systemically important banks.
By updating the parameters used in the calculation to better align with economic growth, the Fed aims to provide a more accurate reflection of banks’ scale relative to the global economy. This move could lead to decreased systemic scores for banks, subsequently reducing their capital surcharge.
New Zealand Dollar Under Pressure
The New Zealand Dollar (NZD) faced significant pressure following an unexpected dovish shift by the Reserve Bank of New Zealand (RBNZ) at its recent policy meeting. While the Official Cash Rate remained unchanged at 5.50%, the central bank’s communication suggested that a rate reduction might be closer than previously anticipated. This marks a stark contrast to the hawkish tone adopted in May.
The RBNZ’s dovish pivot led to a substantial depreciation of the NZD against all its G10 peers, with notable movements in the AUD/NZD and NZD/USD currency pairs. Market analysts now speculate that the RBNZ might consider rate cuts as early as November, contingent on upcoming inflation and employment data.
AUD/USD and USD/JPY Movements
The AUD/USD pair demonstrated resilience, maintaining its bullish trend despite forming a pin bar candlestick pattern. This technical formation typically signals a potential reversal, but the Australian dollar’s strength prevailed.
Meanwhile, the USD/JPY pair experienced a dramatic plunge following the release of weaker-than-expected U.S. inflation data. The Consumer Price Index for June came in below estimates, cooling to 3.0% year-on-year, below the anticipated 3.1%. This data fueled speculation about potential Federal Reserve rate cuts, significantly weakening the U.S. dollar. The USD/JPY pair saw a sharp decline of over 2.0%, reflecting the market’s reassessment of the Fed’s monetary policy trajectory.
Potential Impact on Dollar Dominance
Economic advisers close to former President Donald Trump are reportedly contemplating strategies to devalue the U.S. dollar if he secures a second term. This potential move, aimed at boosting U.S. exports and reducing the trade deficit, could have far-reaching consequences for the dollar’s status as the world’s dominant currency.
The proposed currency devaluation represents a more aggressive approach than previous trade policies and could lead to higher consumer prices for imported goods and potential retaliation from other countries. Critics argue that such policies, combined with other aspects of Trump’s platform, may undermine the foundations of dollar dominance, including U.S. global leadership, macroeconomic management, and the strength of financial institutions.
And that wraps it up, this week’s top news at your fingertips. For any inquiries or feedback, feel free to contact us.
