Fed holds rate but signals 2016 hike imminent

Yesterday was a fairly quiet day in the way of data with the only release of major note being U.K public sector net borrowing in the morning. Showing a very small decrease this was positive for GBP however throughout the day’s trading it continued its slide against EUR, in what seems an ongoing downward trend. Against USD the pound remained volatile throughout the day and closed trading almost exactly where it opened – unsurprising given that the market was heavily focussed on the much anticipated Federal reserve interest rate decision in the early evening. Recent poor US ecostats left economists suggesting close to the release that there was around a 26% chance of a hike this month, and their estimation proved correct.

The FED left the interest rate at the current level of 0.5, however FED chair Janet Yellen did mention she expected one more rise this year if the jobs market continued to improve, and major new risks did not arrive. Albeit slightly opposed to the recent Hawkish comments made by Yellen and Vice-Chair Fischer at the Jackson Hole summit, this was fairly in line with expectation given the poor data releases. As a result this morning we have seen the USD weaken against GBP by around 0.5 of a cent, and largely due to the see-saw effect seen in USD/EUR/GBP the EUR has strengthened by around the same.

This news may come as a warning signal to any USD buyers, as we near the end of the year another rise will only see the USD strengthen further and so rates for buying USD drop. So those of you with upcoming USD purchases would be well advised to speak to your broker today to secure your currency requirements sooner rather than later ahead of the proposed coming interest rate rise. Equally for those with Euro requirements, it would seem timing is key in what are such volatile conditions. With so much going on currently which is effecting exchange rates, get in touch and let us know how we can help – Currency Index can offer friendly and professional guidance on how to try and avoid any costly swings or movements in the rate.

Today will no doubt be an extremely busy day as markets digest the events of last night, and look to what may happen now in the coming months. Later today we also have ECB president Mario Draghi talking at 13.00 and at 17.00 Bank of England Chief Mark Carney also provides a statement. Given the FED now holding many will watch for any hint about the next Bank of England cut, or if last night’s decision will have any effect on the ECB current Q.E programme.

Certainly though with so much going on it seems this period of volatility can and will only continue for some time.