In this week’s GBPUSD report we will have a look
at what events have dominated the cross and how they have affected the markets.
Last week the single focus of cable was the run up to the Federal Reserve
interest rate and Quantitative Easing meeting on Thursday.
Even as early as Monday the market was pricing in
some sort of stimulus intervention as Cable reached a 4 month high. The trend
of sterling strength against the dollar was maintained on Tuesday as markets continued to price in
movement coupled with a threat by ‘Moody’s Investors Service’ that the US was
in danger of losing its triple A debt rating,
if next year’s budget talks do not result in lower debt to GDP ratio.
When the results finally came in late Thursday UK time the
conclusion certainly didn’t disappoint those expecting some action. Ben Bernanke
backed the purchase of $40 Billion of mortgage backed securities every single
month until US growth as
well as the US
job market improves. In addition Fed Chairman Bernanke added to his commitment
to get the US economy moving
through spending by confirming that interest rates in the US would remain
low and wouldn’t be raised until 2015 at the earliest.
This is probably the most decisive action that
the market has seen from the US
to deal with the financial crisis since its inception. At the very least it
sends a clear signal to the rest of the world that the US are prepared to do
everything necessary, including trying new strategies to navigate their way out
of recession and into competitive growth.
Naturally following this announcement cable
continued its upward trajectory as equities and perceived riskier currencies
(including Sterling)
made gains against the Greenback. With the Fed Chairman indicating that he
would be prepared to pump $40 Billion into the economy every month until it has
an effect, the market has the potential to continue the current trend of Dollar
weakness. Essentially Mr Bernanke has embarked on an endless amount of
quantitative easing and so it will be interesting to see how far the markets
move off the back of this uncertainty.
Whilst this is undoubtedly a great time for
dollar purchasers to be taking advantage of the recent gains, it would be wise
to approach the market with some trepidation as the FX markets are notoriously
volatile. Despite a clear shift in fundamentals there is no absolute guarantee
that the technical levels will follow suit, and indeed there have been
countless occasions throughout history where a sharp market movement has been
followed by an equally sharp market retraction. To discuss the different type of currency contracts that are available click here to complete the contact form and take the next step to making the most of your currency exchange.
Weekly Economic
Data that may affect exchange rates
Monday – The main data today is Trade Balance data from the Eurozone, showing
imports and exports. Elsewhere we have UK House Prices. There are no
significant releases from the USA
today.
Tuesday – Some important UK
data today including Inflation data, House Prices and Retail Sales, all of
which are a barometer of overall economic health. In the Eurozone we have
Economic sentiment surveys from Germany
and the EU. In the USA
we have a speech from the Federal Reserve, and some Housing data.
Wednesday – The Bank of England
release their minutes today, which often causes volatility for Sterling. In the Eurozone we see the latest
construction data output. In the USA there are Homes Sales data and
another speech from the FED. Over in New Zealand we see the latest GDP
figures at 11:45pm.
Thursday – UK Retail Sales are released today, showing
full monthly and annual comparisons. In the Eurozone we have inflation data
from Germany, Manufacturing
data from Italy, Germany and France. We also see measures of EU
Consumer confidence. Over in the USA we see the latest Jobless Claims,
Manufacturing data, and yet another speech from the FED.
Friday – We end the week on a quiet note, with the
only UK
data of note Public Sector borrowing. There is nothing of note from the EU
today. Over in the United
States we have, you guessed it, another
speech from the FED.
