Raphael Sonabend, FX Analyst
Volatility was seen throughout the FX markets yesterday as the Fed released a hawkish statement, Carney attacked the Eurozone’s austerity and the Royal Bank of New Zealand (RBNZ) held their cash rate at 3.50%. Yellen’s statement yesterday upgraded economic expansion from ‘moderate’ to ‘solid’ and job gains from ‘solid’ to ‘strong’. Regarding global outlook, the Fed discussed the risks of economies worldwide for the first time since January 2013, saying that “financial and international developments” would weigh on the timing of the first interest rate hike. In Dublin, Carney reiterated the need for structural reforms in the Eurozone, saying that fiscal union is necessary for improvement. Finally in New Zealand, the RBNZ have begun feeling the impacts of a global slowdown and announced that their next cash rate decision could take the rate up or down. Trading focus today will be on US unemployment claims at 13:30 and the German preliminary CPI, which is released throughout the day from six states. With US data forecast to improve and German data predicted to weaken, we could see recent trends continue as the dollar gains and euro weakens.
GBP/EUR: Currently trading at 1.3382
- Steady Sterling gains throughout the day yesterday saw the rate rise from 1.3356 to 1.3416. In a speech entitled ‘Fortune favours the bold’, Carney attacked German austerity (although not by name). Carney stressed the importance of larger countries supporting economies that are struggling with big debts. In essence, Carney is repeating other economist’s words that Germany needs to support struggling countries like Spain or Italy. Whilst he said nothing new, the pound still strengthened against the euro as a result.
- The usual end-of-the-month data is being released this week, none of which has had much impact on the FX markets. German preliminary CPI is being released throughout the day today and volatility could be seen until all six states have reported their figures. With the overall figure forecast to drop off to -0.8% from 0.0%, the euro could continue to weaken throughout the day.
GBP/USD: Currently trading at 1.5119
- The dollar strengthened yesterday as a result of a hawkish Fed statement that provided positive (and some would say bullish) views of the US economic outlook. The statement also repeated that when deciding the first interest rate hike, the Fed would be ‘patient’. Furthermore, the Fed upgraded their view of economic activity from a ‘moderate pace’ to a ‘solid pace’.
- On the back of a hawkish statement, the greenback could continue to post gains throughout today’s session. Further support could be provided by US unemployment claims this afternoon, which are forecast to drop off from 307K to 301K.
EUR/USD: Currently trading at 1.1295
- The Fed’s statement saw strong dollar gains throughout yesterday’s session as this rate fell from 1.137 to 1.128. Slight volatility seen this morning as the first of the German states to announce their CPI has reported a fall of -1.2% from 0.2% previously. German unemployment change this morning rose from -25K to -9K and the euro has received some support as a result.
- Trading later today will focus on US unemployment claims in the afternoon and German preliminary CPI throughout the day. With US unemployment forecast to improve and German CPI predicted to worsen, the dollar could continue to post gains throughout the day.
GBP/AUD: Currently trading at 1.9319
- The pound reclaimed recent losses against the Aussie yesterday after the RBNZ announced that they will be maintaining their 3.50% Official Cash Rate. This announcement tipped the volatile seesaw of RBA cash rate speculation in favour of rate cuts.
- Any data released in the run up to Tuesday’s RBA meeting could have an exaggerated impact on the market as investors anticipate the bank’s decision. Therefore, the Aussie PPI data early tomorrow morning (at 00:30) could generate significant volatility if it falls too far either side of the predicted level.
GBP/NZD: Currently trading at 2.0725
- The Kiwi fell three cent against the pound yesterday after the RBNZ announced the end to monetary tightening and held their Official Cash Rate (OCR) at 3.5%. The bank has echoed words of other central banks, stating that whilst falling oil prices are positive, poor global outlook could impact upon exports. The RBNZ, who have previously been described as ‘racing against the Fed to raise interest rates’, announced that the next OCR movement could be up or down. The bank further repeated their opinion that the Kiwi is overvalued against counterparts.
- With no data of impact due out today, the pound could continue to gain on the NZD on the back of yesterday’s statement. NZ building consents and visitors arrivals data, which is due out this evening, are unlikely to push this pair too far in either direction.
GBP/CAD: Currently trading at 1.8937
- The pound continued to trend higher yesterday as the Loonie struggled to find any support and the Fed statement saw a strong CAD/USD sell-off in favour of the greenback.
- Limited pairing specific data will cast the focus on US unemployment claims this afternoon, which have been predicted to decline, the Loonie could therefore continue to weaken.
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