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The Doves Prevail as Deflation Looms

Central Banks Keep Policy Outlook Accommodative as Inflation Fails to Rise

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Increasing aggressive easing actions from global central banks comes on the heels of rising volatility in financial markets as faltering trade and weak inflation and growing deflationary pressures keep policymakers accommodative in their stance.

Weekly Review

Although many Asian markets were closed for the Chinese Lunar New Year holiday, other markets were not immune as evidenced by the ongoing collapse in key benchmarks across the region.  The Japanese Yen in particular was especially strong, flying in the face of recent negative interest rate policies enacted by the central bank, leading to a direct intervention in the foreign exchange market late last week. 

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The Week Ahead

Adding to the dovish policy outlook for advanced economies was the move by the Swedish Riksbank to drop interest rates even further into negative territory, cutting the benchmark rate by an additional 15 basis points to -0.50%.  The rationale for aggressive easing was inflation failing to budge from just over the deflationary cusp.  Meanwhile, deflation in certain European countries such as Spain has further raised the probability of action from the ECB in the coming meeting to accommodate further by lowering the deposit rate or expanding asset purchases.  Across the Atlantic, Federal Reserve Chair Janet Yellen gave her semiannual congressional testimony, highlighting the ongoing problems in financial markets as potential cause for delays to additional rate hikes. 

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