Morning Report 09.04.2015 - Fed minutes highlight possible June rate rise

Nicholas Ebisch, FX Analyst

The Federal Reserve’s meeting minutes last night showed that officials are divided over the possibility of a June rate rise. The minutes showed that “several” officials thought that June is an appropriate time to increase interest rates, while others cited below-target inflation, among other factors, as a reason to keep rates low. The market had been expecting move dovish sentiment from the Fed, and the dollar has strengthened overnight and especially this morning as a result of the news. Today, we see the official bank rate and an MPC rate statement in the UK, building permits data in Canada, and unemployment claims data out of the US.

GBP/EUR: Currently trading at 1.3791
A day of Sterling gains yesterday saw this pairing peak at 1.3829, a result of poor retail sales data coming out of the Eurozone. This further reinforced the pickup in activity in the UK economy’s largest sector, compared with a struggling European economy, which allowed Sterling to advance against the single currency.

Today attention will be on the official bank rate vote and the MPC rate statement. It is unlikely there will be a change in the interest rate but a hawkish statement that indicates when there might be a rate rise could allow Sterling to continue its advances from yesterday against the euro.

GBP/USD: Currently trading at 1.4788
Cable had strengthened to nearly 1.5 before the Federal Reserve meeting minutes last night, but as soon as the meeting minutes were released, the market interpreted them as more hawkish than expected and the dollar strengthened. This morning the pairing is trading around the 1.48 level as European markets open, and further dollar strength once the US markets open is a distinct possibility. Nothing is expected to change with the UK’s official bank rate today, but we may see some volatility once US unemployment claims are released this afternoon.

EUR/USD: Currently trading at 1.0748
Yesterday morning saw the euro hold its ground despite disappointing monthly Euro-zone retail sales figures, which came in worse than predicted at -0.2%. The greenback strengthened in the afternoon however, on the back of Fed member Dudley’s speech where he stated that a June rate hike is still in play. The dollar gained further against the euro in the evening with the release of the Fed’s March meeting’s minutes, which revealed that Fed members were split over a June rate hike.

A relatively quiet day today has seen a poor German trade balance figure weaken the euro this morning. Later on at lunchtime sees the release of weekly US unemployment claims, and with the number of jobless set to increase, we could see the euro recover some lost ground against the dollar should the figure fall in line with expectations.

GBP/AUD: Currently trading at 1.9244
Yesterday we saw the pairing trade range bound between 1.930 and 1.943 showing little direction as the US announcements remained firmly on the fence with regards to a June rate hike.

Sterling has started this morning’s session on the back foot losing half a cent across the board. We could see this trend continue as USD unemployment claims are set to increase this afternoon. In the overnight session, investors will be keeping an eye on AUD home loans, forecast to improve on last month’s reading to be followed by CNY CPI data set to drop off on a yearly basis.

GBP/NZD: Currently trading at 1.9523
Sterling gained around 0.5% against the kiwi yesterday, peaking at 1.9742. This was a likely result of general Sterling strength on the back of strong data releases earlier in the week.

This morning has seen a large advance of the NZD against Sterling. This Sterling sell off may be in anticipation of interest rates remaining the same after the MPC vote today. There may also be uncertainty caused with a divergence between the number of votes for a rate move, especially with some recent comments indicating that the next move in the interest rate is as likely to be a decrease as it is to be a rise. With no data being released from New Zealand today, this event will be the main cause of moves for this pairing.

GBP/CAD: Currently trading at 1.8590
Yesterday turned out to be a good day for the pound, which gained close to a cent and a half against the loonie. Rising American oil stockpiles sent oil prices lower yesterday, giving the pound room to advance.

The focus for today will be Canadian building permits data released in the early afternoon, where forecasters are predicting an increase in the total value of permits issued. This could give the loonie support throughout the afternoon session, but gains may be limited if US unemployment claims increase as predicted.


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