Mexico's central bank lifts overnight rate by 0.25%

Friday, December 18, 2015

Mexico’s central bank followed the Fed yesterday and increased a key rate for the first time since 2008 as officials expressed their desire to keep in step with the US central bank in order to prevent and limit any currency distortions between the US dollar and Mexican peso. The overnight rate was hiked by 25 basis points to 3.25% after previously holding at the record low of 3.0% since June last year. Market participants had largely expected the move given how crucial the US is to Mexico as a trading partner and the Peso immediately rebounded towards 17.1540 yesterday, after trading briefly below 17.000 earlier on in the session.

The Japanese yen strengthened substantially overnight after briefly trading above 123.50 against the dollar as the Bank of Japan offered additional support to the economy. After hitting a two week low against the dollar the yen saw considerable buying, pushing it towards the 100 and 200 day moving averages as it traded towards 121.70 at the time of writing.

While the central bank maintained its plan to expand the monetary base by 80tn yen per year, a move which was on the whole expected by economists and analysts, the BOJ went further and stated that they would extend the maturity of government bond holdings from 7 to 12 years, increased the maximum amount that it can buy in any one REIT and announced a fresh programme for ETF purchases. This proactive move which saw the yen strengthen prompted a modest sell-off in Japanese equity markets but is on the whole offers a stable outlook for monetary support going into the coming year. The BOJ also announced it would buy an additional 1.5-3tn yen of 10 year bonds in January.

Spot gold prices managed to find some stability around $1,050/oz during overnight trading as immediate support around this level managed to hold firm at the close yesterday. After a precipitous run on prices which saw the yellow metal lose almost 2% yesterday, experiencing heavy selling pressure from $1,072/oz, investors tested appetite for prices just below $1,050/oz  which for the most part held up well. Early indications this morning of firming support around this level have been seen as prices trade around $1,056/oz at the time of writing, however, appetite for significant gains will likely remain limited as investors steadily pull out of the yellow metal in search of higher yielding assets.  

The Mexican peso trades firmly back above 17.00 against the dollar

MXN Curncy Mexican Peso Spot 2015 12 18 08 00 31

Yen strengthens after touching 123.50 against USD

JPY Curncy Japanese Yen Spot 2015 12 18 08 04 11

Events for today

0130

CN

Nov

Property Prices

0130

JP

Dec

BOJ Annual Rise in Monetary Base

0130

JP

Dec

BOJ Monetary Policy Statement

1600

US

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Kansas City Fed Manf. Activity

Topics: USD, Gold, JPY, BoJ, MXN
More from: Kash Kamal