Fed Chair Warsh will be speaking in a panel at the ECB Forum on Central Banking held in Sintra, and markets and the USD will seek cues on his policy leanings. To be sure, Warsh’s public view has been that policy speeches and forward guidance should be limited, but investors will still look for any clues on how Warsh views inflation risks given receding oil prices, particularly as the USD and front-end rates have priced in a hawkish outlook post the June’s FOMC meeting.
Unexpectedly, Warsh is not alone in downplaying forward guidance: ECB President Lagarde also signalled a shift away from forward guidance to “framework guidance” in her speech at Sintra. She highlighted how impacts from shocks are changing quickly, noting that oil prices surged to USD120 before declining towards low USD70s with geopolitical shifts. Thus, it is more important to express the ECB’s reaction function to changing circumstances than expressing forward guidance, which loses its value in times of uncertainty. Her speech suggests that the ECB may not necessarily hike rates further, if inflation is contained due to the normalization in oil prices.
Advisory
We have revised our FX Forecasts in yesterday’s FX Quarterly Report: Less De-Dollarisation, More Polarisation. For the full report, please click here (PDF, HTML)
Quote of the Day
“The bicycle kick is not easy to do. I scored 1,283 goals, and only two or three were bicycle kicks.”
Pele
July 1 in history
The first Tour de France bicycle race began in 1903.
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