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14 Dec 2015

Euro rallies as markets wobble ahead of Fed decision

United States Dollar: The pound fell yesterday as markets positioned themselves for tomorrow evenings Fed rate announcement from the States. It looks like a done deal that we will see the FOMC announce a 25bp increase in the benchmark Federal Funds Rate and as a result we saw cable fall from 1.5175 to a session low of 1.5105 by lunchtime. The pounds move downwards was given extra impetus by comments from Bank of England Deputy Governor Minouche Shafik who was speaking in London. She stated that she would like to see further evidence of wage growth and rising inflation before voting for a rise in UK interest rates which did little for the pounds cause. Today sees the latest inflation data from the UK at 9:30am with an increase from -0.1% to 0.1% expected. Sterling has recovered a touch to currently trade at 1.5140 however we should expect some volatility at the time of the CPI release. This afternoon sees US inflation data and Empire State Manufacturing Index at 1:30pm.

We expect a range today in the GBP/USD rate of 1.51 to 1.5235

Euro: Yesterday saw a big sell-off in the stock markets as we approach Wednesdays Fed decision with all the world’s major bourses falling throughout the day. The FTSE dropped to a three year low dropping below 5900, its eight consecutive daily drop as the continued rout in commodities and oil dragged the index lower. The main benefactor of this stock-market turmoil was the Euro as markets once again sought its relative safe haven. GBP/EUR which was making a push to 1.39 during the Asian session tumbled throughout the day getting as low as 1.3695 before traders took profit. We currently sit at 1.3735 as stock markets open sharply higher this morning. The FTSE is up 1.3%, DAX 1.6% and the CAC40 1.8%. It appears yesterday’s fears have been forgotten and we could see further gains even after the Fed decision as the removal of doubt will settle the nerves of investors. EUR/USD currently trades at 1.1030 after being as high as 1.1065 before London started the day. Today’s one data release of note is the monthly German ZEW which is expected to push up from 15.2 from 10.4.

We expect a range today in the GBP/EUR rate of 1.3695 to 1.3835

Aussie and Kiwi Dollars: Overnight has seen the minutes from the RBA’s latest meeting released with the some moderately upbeat comments about the Australian economy being countered by the door being left open for further cuts in 2016 if the inflationary outlook doesn’t improve; nothing new really and moves in the Aussie were muted as a result. Tonight sees Dairy Trade prices and current account figures released from New Zealand. The Aussie and Kiwi have shown resilience in the past 24 hours with both rising against the dollar. GBP/AUD is at 2.0910 with GBP/NZD at 2.2245.

We expect a range today in the GBP/AUD rate of 2.0830 to 2.1040

We expect a range today in the GBP/NZD rate of 2.2170 to 2.2390

Data Releases

AUD: No data

EUR: German ZEW Economic Sentiment; ZEW Economic Sentiment

GBP: CPI y/y; RPI y/y

NZD: GDT Price Index; Current Account

USD: CPI m/m; Core CPI m/m; Empire State Manufacturing Index

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