Will Boris Johnson able to save the Pound?

The conservative party has elected Boris Johnson as their new leader through vote and he becomes the new Prime Minister for Britain. Now Pound will be saved by him?

No – deal Brexit:

Boris Johnson before the election insisted that Brexit will happen without any deal. In No-deal agreement when Mrs. May was Prime Minister she signed with Irish backstop.

Irish backstop: It means earlier Britain and Irish where under EU and so there was no customs check. Now because of Irish backstop the products will have a border check by customs.

This was not accepted by Tory members fearing that indirectly they are trapped by European Union. But the traders and Irish people are with the agreement and supported Mrs. May. But the Tory members voted against it and made the referendum to a failure. This cost Mrs. May to resign from her post.

Now Johnson wants to remove the backstop and ready to sign the no-deal but EU is not ready to renew the agreement.  So, if the no-deal brexit happens then pound will have parity with Euro and Dollar. If Johnson changes his plan for Brexit the Pound will trade higher.

What happens if No-deal Brexit occurs?

Election and Interest rate:

Most of the analysts predict an earlier election before Brexit will help the pound to trade higher at above 1.3 against dollar. Now it’s trading at 1.21. Boris Johnson also insisted for earlier election while speaking to a reporter.

The U.K economy is looking good at present, as the wages are moving up. The fear factor is inflation which is at 4%. So the Bank of England must hold the interest rate instead of going for rate cut. Last week Bank of England released the refinancing rate which was maintained on hold.

Will Britain face another election?

Financial Institutions:

With the UK’s ongoing no-deal Brexit process, several financial institutions had moved their assets to European cities in order to save their market capacity in the EU.

Several institutions, such as Bank of America, Barclays, Goldman Sachs and Morgan Stanley, have prepared their Europe hub and shifted hundreds of billions of assets out of the UK to Ireland, Germany and France.

What are the consequences of Brexit?

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Will gold peak $2000?

The gold prices are strong gradually increasing on global factors like Brexit deal, Trade War, Middle East tensions and World Economic growth.  The following factors will influence the gold to touch $2000:

Demand:

The World Gold Council’s 2019 figures show that total demand was increased by 7% YoY.

Central Banks bought 145.5 tonnes, which is up 68% YoY. The reason in increased demand for gold is for diversification and for safe, liquid assets.

ETFs added 40.3 tonnes with an increase of 49% YoY. But gold coin and bar investment fell by 1% and appliances usage of gold fell by 3%. Indian jewellery demand boosted up 5%.

Why gold prices are shooting up?

 

Stock Markets:

Investors stopped investing in Stock markets and diversified to gold. Trump is also one of the reason for diversification. He sacked FBI director Comey, the stock market fell nearly 0.85% at the same time gold increased by 1%.

How to trade in markets? What to be followed?

Global Factors:

The trade war is a key factor for increasing the demand for gold. After Trump and Xi had not met a deal for tariffs the gold have fallen down. But still the negotiations are going on. Iran’s drone has been shot by U.S recently. This also spurred the gold market. The uncertainty in Brexit deal also makes the investors to turn towards gold. Overall, the global economy is in bad shape inclusive of U.S. The raising inflation is the biggest worry for U.S and so expecting a Fed interest rate cut in July 2019. If fed cuts interest rate the gold will raise up.

What happens to gold on trade war?

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How does the central bank determine interest rate? What is affected by the Central Bank interest rate?

What is Central Bank Interest Rate?

The levies applied on loans as an interest rate by Central Bank is called Central Bank Interest Rate. It is also known as the price of money that is borrowed or saved.

How it is determined?

The interest rates are determined by the following:
Reserves:

The interest rate is determined by the reserves held by the Central Bank to show their economic growth. If the reserves are down the economy is slowing down and therefore they raise the interest rate or else vice versa.

What is Interest Rate?

 

 

Inflation and Unemployment:

It is one of the key factors to decide the interest rate. The spending power of the people increases the interest rate will be increased to stablise the inflation and the job rate also determines to apply the interest rate. Increase in job number is good for economy.

What are the key factors for interest rate?

Bonds:

Bonds which gives a considerable yields will boost up the central bank to decide the interest rate.

Loans and Home Prices:

The banking industry providing the Loans for consumers which helps the consumers to purchase home, vehicles will also helps the central bank to decide the interest rate.

What are Bond Market?

What are affected by the central bank interest rate?
The commercial banks are the most affected by central bank interest rate. When central bank increases the interest rate, the commercial banks will tighten all types of loan by increasing the interest rate for loans. As the commercial banks increase the rate the consumers purchasing of homes and vehicles will go down and spending power of consumers will be reduced and therefore the business people will get affected. The consumer and business people are unable to repay their loans and so the commercial banks are affected. Because of these factors the economy is getting affected as there is no business and there is no spending by people. When business is affected the currency value and stock price will move down and the country will fell into crisis.

So, the central bank interest rate plays major role for a nations development.

Which determines the interest rate?

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Will U.S replicate 2008?

Will U.S replicate 2008?

It’s hardly a decade over!!! Will there be another Lehmann Brothers collapse? The answer will be yes. Why?

Economy:

The US economy under Trump is doing just fine. The president has overseen a slow but steady economic expansion.  But this only benefited the wealthy Americans not the average labours. In a poll 48% of Americans believe economy is going towards bad shape. Even the GOP’s signature economic Policy achievement, the Tax Cuts and Jobs Act, did little to boost wages and business investment.

 

However, the economy isn’t contracting, so things could be a lot worse. And it’s possible they might get that way. Wall Street banks are already preparing for the US economy to slow down in 2019. Economists do believe the tax bill helped boost overall economic growth — for a little while, at least. The economy was growing at about 2.2 percent a year since the end of the recession in 2009, and then hit 4.2 percent in the second quarter of 2018, right after the tax cuts went into effect. The third quarter was also strong, with a 3.5 percent increase. By the end of 2018, however, annual economic growth fell to 2.6 percent.

What is Economy? Why is it important?

Stock Markets and Trade War:

After Trump has become President in 2017 the stock market was started moving up and in January 2018 the DOW has breached 25,000 points and many stocks have shown good growth. The investors had also good returns for their money. But before the end of 2018 the stock markets has faded and investors lose their investments. Trump also picked stock market as a favourite tool to measure the economic growth.

Again in January 2019, the DOW reached 25,000 points and did some favour for investors. Now the investors  and analysts are expecting a crash in stock markets as the markets are overvalued and the trade war which has been emerged between U.S and China. Initially, after Trump sworn in as President he promised to upend free trade, which he blamed for the loss of well-paying manufacturing jobs.

He definitely disrupted international trade, but his restrictions have done more harm than good. Over the past year, America has placed about $200 billion in tariffs on Chinese goods, in part to make Chinese products more expensive so Americans don’t buy them. The administration has also placed steep tariffs on all imported steel, angering other major US trade partners.

What is market analysis? How it helps traders?

The idea was to level out the trade deficit with China and make China buy more US goods, but, as expected, China responded by slapping its own tariffs on American imports.

Trump’s protectionist trade agenda ended up hitting American farmers the hardest. A total of 84 farms in the Upper Midwest filed for bankruptcy between July 2017 and June 2018. Farms that produce corn, soybeans, milk, and beef were suffering due to low global demand and low prices, according to economists, and Trump’s trade war is making the problem even worse.

What is trade war? Will trade war come to an end?

Bond Market and Unemployment rate:

The 10-year US bond yield has fallen below the 3-month bond yield. In simple terms, this means that long-term bonds are offering lower returns than short-term bonds and is seen as an indication of economic uncertainty. The yield inversion has raised fears that the US economy may be headed for a recession.

Will bonds benefit investors? Will yields affect growth of the country?

The US unemployment rate has been on a steady downward trend since the end of the Great Recession, dropping from 9.8 percent in January 2010 to 4.8 percent when Obama left office. Under Trump, unemployment hit a low of 3.7 percent in September, though it has started to tick up in recent months.

In September, the black unemployment rate fell to 6 percent for the first time, setting a new record that suggests progress is being made toward closing a longstanding employment gap between black and white workers. The black unemployment rate has since ticked up to 6.8 percent, but that’s still low by historical standards.

What is GDP? How it affects the economy?

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What is Monetary Policy? What are its importance and impacts?

What is Monetary Policy?

Monetary policy is a set of economic policy that manages the size and growth rate of the money supply in an economy. It is a powerful tool to regulate macroeconomic variables such as inflation and unemployment.

Monetary policies are implemented through different tools, including the adjustment of the interest
rates, purchase or sale of government securities, and changing the amount of cash circulating in the economy. The central bank or a similar regulatory organization is responsible for formulating monetary policies.

Importance of Monetary Policy:

To ensure economic stability at full-employment or potential level of output;
To achieve price stability by controlling inflation and deflation; and
To promote and encourage economic growth in the economy.

Monetary policy is concerned with changing the supply of money stock and rate of interest for the purpose of stabilising the economy at full-employment or potential output level by influencing the level of aggregate demand.

More specifically, at times of recession monetary policy involves the adoption of some monetary tools which tend the increase the money supply and lower interest rates so as to stimulate aggregate demand in the economy, on the other hand, at times of inflation, monetary policy seeks to contract the aggregate spending by tightening the money supply or raising the rate of interest. Monetary policy has also to promote and encourage economic growth both in the industrial and agricultural sectors of the economy.

Impacts of Monetary Policy:

Monetary policy is a powerful tool that the government and concerned monetary authorities use to influence the economy based on a reaction to certain issues and predictions of where the economy is moving. The monetary authorities need to make accurate predictions based on solid information to properly adjust the money flow and rates of interest. There is an inverse relationship in money flow and interest rates. Increasing money flow and decreasing interest rates can encourage spending and, as a result, stimulates the economy. More spending means more jobs and curbing unemployment.

Monetary policies have an impact on an individual’s life too. If a government thinks the economy is overheating and growing very fast, there are chances of inflation so, the government may decrease spending.

Similarly, taxes play a vital role in monetary policy. Decreasing taxes can stimulate the economy as people will have more money in pockets to either invest or save. The investments will increase production and more people will be hired reducing the level of unemployment.

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