08 Dec 2014

Dollar retraces as FOMC statement looms

United States Dollar: The dollar retraced on Monday, giving up some - if not a lot – of the gains that it made following the release of strong US jobs data on Friday. After starting the day at 1.5545, GBP/USD pushed slowly higher throughout the day yesterday, trading to a high of 1.5688, this coming only within the last couple of hours. There wasn’t any notable UK or US economic data released yesterday. The Fed’s Dennis Lockhart was speaking on Monday though and said that there should be no rush to remove the phrase “considerable time” from the central bank’s statement when referring to when the next interest rate rise would be. There is a bit of debate over this at the moment especially so ahead of the FOMC statement next week. Moreover, there are some commentators out there that believe the phrase will be removed by the Fed next Wednesday. Either way, Lockhart’s comments were dovish yesterday and only served to fuel the sell-off in the greenback. UK Manufacturing data is due this morning and will be watched carefully. There’s not a lot of data due from the US and this afternoon so the “considerable time” debate will likely continue to dominate headlines in FX.

We expect a range today in the GBP/USD rate of 1.5600 to 1.5725

Euro: Like GBP/USD, EUR/USD has made steady gains over the last 24 hours. This time yesterday it was trading at 1.2247 and this morning it opens at 1.2355. It’s higher despite some very dovish comments from the ECB’s Ewald Nowotny who said “we see a massive weakening in the euro zone economy”. This kind of comment hardly comes as much of a surprise to investors these days but he did go on to say that the main focus during ECB discussions will be on the pros and cons of buying sovereign bonds…..the full blown QE guessing game continues. GBP/EUR is a little higher this morning as a result and it trades at 1.2680 currently.

We expect a range today in the GBP/EUR rate of 1.2640 to 1.2720

Aussie and Kiwi Dollars: AUD/USD snapped lower overnight after the NAB business confidence survey printed weaker than expected. Following the release, National Australia Bank went on to confirm they were changing their forecasts on interest rates and were now predicting the RBA to cut rates by 0.25% in March and August 2015. The aussie fell to a low of .8220 on the news and is lower vs. the pound this morning too – GBP/AUD opens at 1.8935. NZD/USD was dragged lower with the aussie dollar last night and fell to a low of .7605. The kiwi has bounced in early Europe however and opens the London session at .7670.

We expect a range today in the GBP/AUD rate of 1.8860 to 1.9000

We expect a range today in the GBP/NZD rate of 2.0360 to 2.0490

Data Releases

AUD: Westpac Consumer Sentiment, Home Loans m/m

EUR: ECOFIN Meetings

GBP: Manufacturing Production m/m, Industrial Production m/m, NIESR GDP Estimate

NZD: No data

USD: NFIB Small Business Index, JOLTS Job Openings, Wholesale Inventories m/m

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