• Central banks failing, except for the Fed
  • Bank of Canada cut benchmark rate, Canadian dollar collapses
  • Banking of England turning dovish, pound under pressure
  • European Central Bank announcement today

With the exception of the Fed, most of the major central banks have failed to fulfill their institutional responsibilities lately.  Central banks are supposed to promote growth, maintain price stability and mitigate financial turbulence.

On Tuesday, the International Monetary Fund (IMF) lowered the global growth forecast for 2015 to 3.5 percent, down 0.3 percent from the growth rate it predicted only three months ago.  The IMF reported that major economies are expected to experience a slowdown, except for the US, whose forecast was singled out and revised up by 0.5 percent to 3.6 percent for 2015.

On the price front, most of the major economies reported during the past week that their inflation rate has fallen too far below a target rate of 2.0 percent, mostly driven by falling oil prices and anemic domestic demand.  In contrast, the US managed to keep its core inflation rate steady at 1.6 percent.

The Swiss National Bank created outsized turbulence last week when it abandoned the Swiss franc peg with the euro, citing rising costs associated with maintaining the peg on.  And yesterday, the Bank of England (BOE) drove the pound lower when its monetary policy committee voted unanimously, 9 to 0, to keep buying bonds.  Not to be left out, the Bank of Canada (BOC) stunned the market a few hours later by cutting its benchmark rate and plunging the Canadian dollar to a 6-year low against the dollar.

So what about today? Today should be another tumultuous day. The European Central Bank (ECB) is expected to announce its sovereign bond buying program this morning.  Analysts are expecting the ECB will purchase about 600 billion euros in bonds.  However, if the purchase amount is greater than 600 billion, then the dollar could continue the rally to new highs.

Stay tuned.

EUR-USD is trading near an 11-year low early this morning ahead of the ECB monetary policy announcement. EUR-USD could go much lower if the ECB announces an aggressive bond buying program.

GBP-USD fell 0.5 percent overnight and managed to stabilize near 1.5130.  The BOE reported that all nine monetary committee voting members voted to keep the current bond buying efforts going despite a fall in the unemployment rate in December.  The bank is increasingly concerned about falling prices both at home and overseas.

USD-CAD jumped over 2 percent yesterday and climbed near a 6-year high level after the BOC cut its benchmark rate, citing low energy prices as having negative effects on the economy.

Have a great day.