Coffee prices fell across the board, trading volume increased sharply, BoE raised interest rates to a 15-year high

This latest move by the Bank of England (BoE) has contributed to an immediate correction on the coffee derivatives exchanges.

World coffee prices have all adjusted down after a series of sharp increases. Although concerns about supply remain from now until the end of the year, strong selling pressure from Brazil has contributed to pushing prices down in the short term.

The Brazilian Monetary Policy Committee (Copom) has announced a 0.5% cut in the Real's base interest rate to 13.25% per year. This has raised concerns that the Real will go negative again, even though farmers are the biggest beneficiaries in the short term and agricultural products of all kinds will be boosted in sales.

Strong selling pressure emerged from Brazil, fueled by falling interest rates and speculation that the country’s monetary policy would be loosened in the coming months. The Brazilian central bank cut interest rates more than expected and signaled more such adjustments to come. Looser monetary policies have helped to flood the market with new crops.

After the first interest rate cut in three years by the Brazilian Copom, in contrast to the US Fed, appeared to have triggered a flight from risky assets, US stocks turned lower and US Treasury yields were pushed to their highest level since November 2022.

While the ICE – London inventory report on August 3 continued to decrease by another 260 tons, down to 51,050 tons, it could not prevent robusta coffee prices from ending their increasing streak.

Giá cà phê hôm nay 28/4/2023 (Nguồn: Premiumwishes)

Domestic coffee prices today, August 4, decreased by 300 - 400 VND/kg in some key purchasing localities. (Source: Premiumwishes)

At the end of the trading session on August 3, the price of robusta coffee on the ICE Futures Europe London exchange decreased. The price of robusta coffee futures for delivery in September 2023 decreased by 29 USD, trading at 2,645 USD/ton. The price of futures for delivery in November decreased by 16 USD, trading at 2,516 USD/ton. Trading volume was high.

Arabica coffee prices on the ICE Futures US New York floor also decreased, with the September 2023 delivery period increasing by 2.20 cents, trading at 164.75 cents/lb. Meanwhile, the December 2023 delivery period decreased by 2.35 cents, trading at 164.00 cents/lb. Trading volume was high.

Domestic coffee prices today, August 4, decreased by 300 - 400 VND/kg in some key purchasing localities.

Average price	Change
USD/VND exchange rate	23,580	0
DAK LAK	67,300	- 400
LAM DONG	66,600	- 300
GIA LAI	67,000	- 400
DAK NONG	67,600	- 300

Unit: VND/kg.

(Source: Giacaphe.com)

Following the interest rate moves of major economies , the BoE on August 3 also announced to raise the interest rate of the pound by 0.25% to 5.25%/year, the highest level in the past 15 years, to curb inflation in the UK which is hotter than many other economies. At the same time, the BoE also warned that borrowing costs may still increase even though inflation has decreased.

Most economists had forecast such an increase after the central bank raised interest rates by half a percentage point at its previous meeting.

UK inflation fell more than expected to 7.9% in June 2023. However, the MPC warned that it was too early to conclude that the economy was at or very close to a turning point. Prices in the UK are still rising at a faster rate than other advanced economies such as the US, Japan and the eurozone, where many are hoping that interest rates will peak soon.

Immediately after the BoE's rate hike, the pound slid and UK government bond yields fell.

The pound fell to a five-week low of $1.2623, while the yield on two-year UK government bonds - which are highly sensitive to short-term interest rates - fell from 4.94% to 4.92% immediately after the BoE's announcement.

The bank's updated forecasts show that even if interest rates rise further, the economy would still have to wait until mid-2025 to see inflation fall to the BoE's 2% target.

The BoE expects GDP growth to remain steady at a quarterly rate of 0.2% in the coming period, but momentum will be tempered by the impact of higher interest rates, even as the economy avoids recession.

The bank also expects inflation to continue to fall in the coming period, averaging 6.9% in the third quarter of 2023 and 4.9% in the fourth quarter. If realized, that would be good news for British Prime Minister Rishi Sunak, who has pledged to cut inflation in half (to 5.4%) by the end of this year.

Source