Markets focus on US interest rates

Wednesday provided a particularly quiet UK trading session with no major data releases to help or hinder sterling exchange rates. The Euro had another good start to the day following its recent extensive losses and saw small gains against the pound and USD following better than expected Gfk Consumer Confidence figures for Germany with results up to 9.3 from 9 last month. GBP/EUR rates failed to breach the previous day’s high for the 3rd day in a row signalling that the current rally to this 7 year high has now seemingly reached its short term peak.

There was however one big announcement for the US last night as the details of the FED’s latest interest rate decision were released. As expected the base rate was held at record low levels of 0.25% and stated that they would be ‘patient in beginning to normalize the stance on monetary policy’. Effectively the FED are saying that will not rush a return to higher interest rates however after some initial volatility the USD made good gains against the pound and Euro as markets continue to bank on this rate hike being before any of the other major economies and potential as soon as June. This single fact is almost certain to keep the USD in prime position of strength in the next 6 months.

There was also a rate decision from the other side of the world in New Zealand where again a hold in rates was announced at 3.5%. The Kiwi Dollar did however come under some selling pressure after the announcement and some markets were speculating on the possibility of an increase in the base rate. GBP/NZD are currently at the best levels for 4 months and approaching the peaks of 2012.

Today’s trading had begun with German Unemployment figures which were expected to remain stable at 6.5% and actual results meeting forecast and causing no reaction on Euro exchange rates. The rest of the day ahead remains relatively quiet with just German inflation figures at 1:00pm and US Home Sales and Jobless Claims figures which are unlikely to have a major impact on exchange rates.